Background and Early Cases – The First Period.........................................................................1A. The Case of Monopolies, 1603................................................................................................1B. A Note on the Economics of Monopoly...................................................................................1C. Mitchel v. Reynolds, 1711.....................................................................................................1D. Sherman Antitrust Act (p. 30):..............................................................................................2E. U.S. v. EC Knight, 1895.............................................................................................................2F. America Banana v. United Fruit Company, 1909, note case..............................................2

Horizontal Combinations in Restraint of Trade............................................................................2G. United States v. Trans-Missouri Freight Ass’n, 1897........................................................2H. US v. Addyston Pipe and Steel Company , 1898, Sixth Cir............................................2I. Cartels..........................................................................................................................................3

Monopolization and Merger...............................................................................................................3J. Standard Oil Company of NJ v. US.........................................................................................3K. The Attempt to monopolize.......................................................................................................4

Vertical Restraints of Trade- Resale Price Maintenance...........................................................4L. Dr. Miles Medical Company v. John D. Park & Sons, 1911 (vertical restraint of trade)..4M. U.S. v. Colgate & Co, 1919...................................................................................................4N. The Clayton Act......................................................................................................................5O. The FTC Act............................................................................................................................5

The Second or Rule of Reason Period – 1915 to 1939...............................................................6A. Board of City of Trade of Chicago v. United States, 1918...................................................6B. United States v. US Steel Co., 1920.......................................................................................6C. American Column & Lumber v. US, 1921...........................................................................6D. Posner Note: 5 Industry Conditions for when Oligopoly is Likely...................................7

The Interplay between Patents and Antitrust Law......................................................................7E. US v. GE Company, 1926.........................................................................................................7F. Standard Oil Company (Indiana ) v. US, 1931......................................................................7

Testing the Limits of the Rule of Reason......................................................................................8G. United States v. Trenton Potteries Co, 1927......................................................................8

The Third Period: The Per Se Rule is King: 1940-1974..............................................................9Horizontal Combinations in Restraint of Trade............................................................................9Market division, group boycott, monopolization.................................................................................9

A. U.S. v. Socony-Vacuum Oil, 1940 – price fixing....................................................................9B. Fashion Originators’ Guild of America v. FTC, 1941, group boycott..................................9C. Radiant Burners Inc, v. People’s Gas & Light Coke Co, 1961, group boycott (note case) 9D. Timken Roller Bearing v. US, 1951 (not read for class) – market division..................10E. U.S. v. Topco, 1972..................................................................................................................10

Monopolization....................................................................................................................................10F. U.S. v. Alcoa, 1945, 2nd Cir (aff’d in American Tobacco)..................................................10G. U.S. v. United Shoe Machinery Corp, 1953, District Court............................................11H. Lorain Journal and Otter Tail Cases..................................................................................12I. Utah Pie v. Continental Baking Co, 1967 – predatory pricing...........................................12

Vertical Arrangements Perceived as Exclusionary...................................................................12Exclusive dealing and tying arrangements.......................................................................................12

J. International Salt v. United States. 1947; tying....................................................................12

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K. Standard Oil of CA v. United States, 1949, exclusive dealing..........................................13L. Single Product Problem:..........................................................................................................13M. FRANCHISING/TYING ISSUES........................................................................................13N. Northern Pacific Railway v. US, 1958 – still the rule for tying cases............................14O. United States v. Loew’s, 1962............................................................................................14P. Fortner Enterprises v. US Steel, 1969..................................................................................14

Dealing with Dealers............................................................................................................................15Resale price maintenance................................................................................................................15

Q. Klor’s Inc v. Broadway-Hale Stores, 1959 (not read for class)......................................15R. U.S. v. Parke, Davis & Co, 1960........................................................................................15

Territorial Allocation..........................................................................................................................16S. White Motor v. US, 1963.........................................................................................................16T. Albrecht v. Herald Co, 1968 – overruled by State Oil Co. v. Khan...................................16

Price Discrimination: The Robinson-Patman Act......................................................................16Monopoly..............................................................................................................................................17

U. General Points:.....................................................................................................................17V. Brown Shoes Co v. US, 1962.................................................................................................17W. United States v. Philadelphia Nat’l Bank, 1963...............................................................18

Joint Ventures.....................................................................................................................................19X. U.S. v. Penn-Olin Chemical Company, 1964.......................................................................19Y. FTC v. Procter & Gamble, 1967.............................................................................................19

The Fourth or Current Period: Since 1974...................................................................................21The Transition Period........................................................................................................................21

A. US v. General Dynamics Corp, 1974....................................................................................21B. Continental T.V. v. GTE Sylvania, Inc, 1977........................................................................21C. Brunswick Corp v. Pueblo Bowl-O-Mat, 1977.................................................................22

The Per Se Rule v. Rule of Reason Debate Continues in § 1 Cases..........................................23Horizontal Price Fixing......................................................................................................................23

D. Note case: Goldfarb v. Virginia State Bar, 1975.............................................................23E. National Society of Professional Engineers v. US , 1978..................................................23F. Broadcast Music v. CBS, 1979...............................................................................................23G. Arizona v. Maricopa County, 1982 (not read for class)..................................................24H. NCAA v. University of Oklahoma, 1984............................................................................24

Group Boycotts by Competitors....................................................................................................25I. Northwest Wholesale Stationers v. Pacific Stationary & Printing, 1985..........................25J. Rothery v. Atlas Van Lines, 1986 – this is ONLY a court of appeals case......................25K. Note: Boycotts as a Form of Protest....................................................................................26

Horizontal Market Division...............................................................................................................26L. Jay Palmer v. BRG of Georgia, Inc, 1990 (BarBri case)....................................................26M. Forest City v. Polk Brothers, 1985, 7th Cir........................................................................26

Dealing with Dealers..........................................................................................................................26N. Monsanto Co v. Spray-Rite Service Corp, 1984 –..........................................................26O. Business Electronics v. Sharp Electronics, 1988............................................................27P. State Oil Co v. Khan, 1997......................................................................................................28

Pulling the § 1 Cases Together.......................................................................................................28Q. 3 Efforts to Reconcile the “Modern” Cases......................................................................28

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R. California Dental Ass’n v. FTC, 1999................................................................................29S. In the Matter of Polygram Holding, 2003, FTC Opinion.....................................................30

The Continuing Concern about Exclusionary Conduct...................................................................30Monopolization....................................................................................................................................30

T. Aspen Skiing Co v. Aspen Highlands, 1985.........................................................................30U. Verizon v. Trinko, 2004........................................................................................................31

Predatory Conduct.............................................................................................................................32V. Matsushita Electric Industrial Co v. Zenith Radio Corp......................................................32W. Le Pages v. 3M, 3rd Cir, 2003.............................................................................................33

Tying and Exclusive Dealing in the Current Period..................................................................33X. Jefferson Parish Hospital Dist. No 2 v. Hyde, 1984............................................................33Y. Eastman Kodak v. Technical Services, 1992.......................................................................34

Titanic Struggle over Alleged Exclusionary Behavior - the Microsoft Cases....................35Z. US v. Microsoft, DC Ct of Appeals, 1998..............................................................................35AA. U.S. v. Microsoft, DC Cir Ct of Appeals, 2001.................................................................36BB. Clayton §7—The Hart-Scott-Rodino Act...........................................................................38

Merger Review.....................................................................................................................................38CC. Merger Guidelines (p. 884).................................................................................................38DD. FTC v. Staples and Office Depot, Dist Ct for Dist of Columbia, 1997..........................39EE. FTC v. HJ Heinz....................................................................................................................39

Interplay between IP and Antitrust................................................................................................40FF. General Points from the Guidelines...................................................................................40GG. Intergraph v. Intel, Ct of Appeals, Fed Cir, 1999.............................................................40HH. Andrex Pharmaceuticals v. Biovail Corp, Ct of Appeals, DC Circuit, 2001.................41

Interplay between Regulation and Antitrust Laws....................................................................42II. Federal Regulation...................................................................................................................42JJ. State Regulation...................................................................................................................42KK. . Southern Motor Carriers Rate Conference v. US (1985)............................................42

Local Regulation.................................................................................................................................43LL. City of Lafayette v. Louisiana Power & Light (note case)..............................................43MM. Community Communications Co v. City of Boulder (note case)...................................43NN. Fisher v. City of Berkeley (note case)...............................................................................43OO. Columbia v. Omni Outdoor Advertising (1991)................................................................43

International Application of Antitrust Law..................................................................................44PP. Hartford Fire Insurance v. California (1993).....................................................................44QQ. Empagran v. F. Hoffman-LaRoche, Ct. of Appeals, DC Circ, 2003.............................45

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ANTITRUST OUTLINESPRING 2004

Background and Early Cases – The First Period

A. The Case of Monopolies, 1603a. Complaint of monopolization of play cards; case is about trying to enforce a monopoly

granted by the queen to her close friend. Darcy claims he has a monopoly, and tries to make a police argument in favor of it, namely, that playing cards is a distraction, and it is appropriate that these less desirable qualities be controlled by those who have gentlemanly qualities.

b. Holding: court doesn’t enforce the monopoly, but Darcy doesn’t go to jail. Until the Sherman Act, the general approach to monopolies was simply not to enforce them.

c. Court gives 4 reasons why monopolies are badi. Takes away jobs from other peopleii. Too much private gain at the expense of the public (i.e. prices rise, quantify

falls, quality falls)B. A Note on the Economics of Monopoly

a. Principle of scarcity: can’t have everything we want w/o any concern for costb. People act so as to maximize their own self interestc. Life is lived at the margins: we constantly make judgments about “a little more of this”

and “a little less of that”d. We deal with each other in markets: e. The quest for allocative efficiency: want to be at a point where there is no combination

of production or exchange that could make anyone better off w/o someone else worse off.

i. Allocative efficiency is the idea that we want to create a system that gives goods/services to those who value it most.

ii. Productive efficiency: sometimes it takes a fairly large productive capacity to produce a particular good at the lowest possible marginal cost.

iii. Dynamic efficiency: sometimes to achieve this need to give up some allocative efficiency and some productive efficiency.

f. How prices are set in competitioni. Price is set where MC = MR

g. Distortions imposed by monopoly:i. will look where MC meets MC, and then move up to the demand curve to set

the price. ii. Problem of DWL

C. Mitchel v. Reynolds, 1711a. One baker buys a business from the another, and agreement by seller not to compete

with buyer for a period of 5 years; posted a 50lb bond as a guarantee. Seller comes back and competes before 5 yrs passed; Buyer sues on the bond and sellers says its unenforceable b/c it is a contract in restraint of trade.

b. Court thought the contract was reasonable and enforceable. Says this wasn’t a general restraint of trade, but a specific/localized restraint. This was a limited monopoly for a limited time, and if it wasn’t allowed, then the buyer would just pay less or nothing. Court says that permitting enforcement of this type of arrangement permits transaction to occur that we want to occur. This didn’t guarantee a monopoly, only a right for this seller not to compete.

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D. Sherman Antitrust Act (p. 30):a. § 1: every contract, combination, in the form of trust or otherwise, or conspiracy, in

restraint of trade…is hereby declared to be illegal. b. §2: every person who shall monopolize, or attempt to monopolize, or combine or

conspire with any other person or persons, to monopolize any part of the trade of commerce….

i. This is aimed at a single firm achieving a status that would allow them to monopolize.

E. U.S. v. EC Knight, 1895a. Case of the sugar trusts – American Sugar refining company had acquired 98% of the

sugar refining; this case was brought when the last 33% was being acquired. Gov’ts theory was that this was a combination in violation of § 1 and also a monopolization in violation of § 2. on these same facts today, the gov’t would clearly win. But this case came out differently. Court said the fed gov’t can only regulate commerce among the states and with foreign governments. Since refining only takes place within a single state, manufacturing isn’t within the power of the federal gov’t. Can’t infringe on states rights to regulate.

b. Harlan (dissent): if you control refining of a product and monopolize that stage in the process, it is a critical monopoly. Congress may remove unlawful obstructions, of whatever kind, to the free course of trade among the states.

c. This case effectively OVERRULED now, would be interstate commerce today, it would make Sherman Act illusory, too narrow

F. America Banana v. United Fruit Company, 1909, note casea. United fruit company had bought several plantations and obtained a monopoly in the

production of bananas. The effect was to control the supply of bananas to the USb. Supreme Court held that the antitrust laws did not apply to acts that occurred wholly in

another country. The Sherman Act can not render acts illegal that were legal in the nation where they were committed.

c. NOW: if there is an effect on US exports and imports, then US antitrust law may apply

Horizontal Combinations in Restraint of Trade

G. United States v. Trans-Missouri Freight Ass’n, 1897a. Agreement by the railroads to come together and jointly set prices. This was an

industry already regulated by the ICC. b. Two issues to be resolved by the court are (1) does the trust act apply to and cover

common carriers by railroad, and if so, (2) does the agreement set forth in the bill violate any provision of that act?

c. This was an industry already regulated by the ICC, but the Court found that although dealing with two Congressional acts, the specific ought to control the general, and congress was fully able to say in the Sherman Act that it was exempting railroads. Also, the ICC regulates more of the discriminatory character of the rates and not the rates themselves. Reasonableness of the rate is not a defense.

d. What did the statute prohibit? Every contract in restraint of trade was prohibited. Railroads are clearly interstate, so it fell under EC Knight.

e. White: dissent: only unreasonable contracts in restraint are bad

H. US v. Addyston Pipe and Steel Company , 1898, Sixth Cir.a. Pipe companies got together and decided that each would sell to a certain cities.

Whoever had the city would choose a price, and the other companies would bid higher.

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If no one had the city, they would bid within the group, and the spoils would be divided up. This is classic price fixing. Firms argued that they only controlled 30% of the entire market and therefore couldn’t be a monopoly. Also argued that the entire country wasn’t affected b/c the winners were winning in their own city.

b. Taft (for the court) i. Need to understand that this act comes from C/L and everything illegal at C/L is

illegal now, plus Trans-Missouri held that more can be illegal. ii. Doesn’t think that all contracts in restraint of trade are illegaliii. Talks about when the restraint of trade is ancillary, such as an agreement by a

seller not to compete, by a retiring partner not to compete, by a partner pending partnership not to do anything to compete with the firm, by a buyer of property Not to use the same in competition retained by the seller, and by servant/assistant not to compete with his master. Essentially want to encourage some transactions and are willing to put up with a little restraint.

iv. Does not admit to proposing a rule of reason – to do so would be “to sail on a rule of doubt.” Says instead that he’s coming up with a limited exception to the every contract approach where the overall transaction is desirable and not in restraint of trade will tolerate a moderate, ancillary restraint of trade that helps the underlying transaction get done.

c. S.C. later affirms the case, but didn’t adopt the ancillary restraint language. Took it as interstate commerce case.

d. This is still a classic antitrust violationI. Cartels

a. Addyston Pipe was one; the classic one is OPEC.b. One of the problems faced is “cheating.” Another one is getting everyone to join. A third

problem is reaching an agreement on what price to set.c. In a case like Addyston Pipe, harder to cheat b/c it was a public bidding system.

Monopolization and Merger

J. Standard Oil Company of NJ v. US a. Rockefeller gets involved in out production, and gets to the point where he controls

90% of the oil production, shipping, refining, and sale of petroleum and its products. Had deals with RRs to ship his oil cheaply, and set up corp in NJ to hold and manage the shares of the partners. Made it difficult for new entrants.

b. note: there was no chance that Rockefeller was going to win this caseJustice White (for the court)

c. We should read the Sherman Act in the setting of the C/L, which provides the framework. With § 1, look for contracts that restrict someone’s freedom and forces them to lower output or raise price.

d. Contracts are forbidden that tend to create a monopolye. Creation of the Rule of Reason: departure from the idea that every contract in restraint

of trade was likely to be held illegal to one that said there is a particular class or arrangements that are illegal (those that would be illegal at C/L, allow the firm to act as a monopolist in violation of § 2, or under § 1 involves contracts by which firms agree to behave in a manner parallel to something that would violation § 2.

f. Even under this rule of reason, Court finds that Rockefeller was wrong. His goal was to drive out competition and this was not a normal mode of doing business; he was preventing people who wanted to be in the oil business from getting in. Also, the intent and purpose Rockefeller had was to be exclusionary rather than offer the best product. Third, what he did was try to eliminate the potentiality of competition - to prevent firms

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from entering the industry or remaining in it who would have bid the price back to the competitive price.

g. Remedy: dissolution of the corporation – broke the company back up into the separate little companies that had formed it, and the industry was then a 30+ firm industry.

Harlan (dissent)h. Had a good rule in Trans-Missouri (all contracts in restraint of trade are invalid) and

now its ambiguous.K. The Attempt to monopolize

a. Is this enough to violation § 2? b. Swift & Co v. US, 1905: rule is that you need more than intent; its not illegal to want to

be a monopoly. Need to want to be one, act on it, and have a dangerous likelihood of success. Intent alone not enough.

c. U.S. v. Terminal Railroad:i. 14 RR through St. Louis bought the station and bridge into St. Louis. Concern

that the RRs not in the group wouldn’t be able to cross the river. Court found that the consolidation of all the rail service in St. Louis violation § 2, but the remedy wasn’t to break it up b/c there was only room for one bridge and switching yard in St. Louis. Ct. said that the monopoly would be said to be an essential facility – had to be made available to anyone who needed to use it, but could charge a price that is the same as the other RR paid.

Vertical Restraints of Trade- Resale Price Maintenance

L. Dr. Miles Medical Company v. John D. Park & Sons, 1911 (vertical restraint of trade)a. Although decided the same year of Standard Oil, this was months before the RR, and

decided under the “every contract in restraint of trade” concept. This case still remains good law.

b. Dr. Miles sold different medicines all across the country – he thought that this was a consignment contract and therefore he would be able to set the price. He could choose the min price and the seller received a portion of it; if the seller can’t sell it, goes back to Dr. Miles. Here someone gave the medicine to Park, who ran a discount store. Miles comes in and wants an injunction to prevent Park from selling it. Defense is that this is a contract in restraint of trade and the courts don’t enforce those. Here the P isn’t seeking Sherman Act relief, but the same type as in Mitchel.

c. Court finds that this is an unenforceable contract b/c it is in restraint of trade b/c wholesalers are buying good and reselling them, so title passed to wholesalers.

d. Miles tried to argue that his processes were secret and this was analogous to a patent – Court said previously said that a patent holder can make use of it contingent on not undercutting the price – but here Miles hadn’t applied for a patent, which would have meant disclosing the recipe.

Holmes (dissent):e. Generally, it’s a good idea for people to have freedom on contract. In a market where

there are multiple brand the ability of any one of them to set a price won’t be their relationship with the dealer, but the price that competing products are sold for. Miles isn’t able to control the price of all aspirin, just his; can’t really affect customers b/c there are other manufacturers.

f. Even if Holmes is right, still might be better off safe than sorry. M. U.S. v. Colgate & Co, 1919

a. Colgate was engaged in resale price maintenance. Prosecutor charged a conspiracy and didn’t name anyone other than Colgate – case is dismissed on this basis alone.

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b. Court said that while a firm may not establish contract as Miles did to require firms to sell a given price, they can adopt a system that they deal only with their friends, and their friends only sell at prices they like, and they won’t deal with them if they sell at less than the price (i.e. MSRP).

c. If a firm only suggests a price and only deals with firms that use that price, that is different than Miles and not a violation of § 1.

N. The Clayton Act a. Section 2 – Forbids price discrimination (to have diff prices for diff purchasers of

commodities unless price diff to reflect shipping costs, etc.)b. Section 3 – Exclusive dealing arrangements (buy from me, can’t buy from others) + Tying

arrangements (buy my racquet, must also buy my tennis balls)c. Section 4 – Treble damages + atty’s feesd. Section 5 – If one convicted in antitrust violation, later P’s can go back and sue for

damages w/o again proving person did acte. Section 6 – Labor of humans not commodity (see labor unions stuff above)f. Section 7 – Corporate mergers can’t create competition in restraint of tradeg. Section 16 – Right to sue for injunction for antitrust

O. The FTC Acta. Section 5 – All FTC antitrust stuff done under Section 5, empowers FTC to act

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The Second or Rule of Reason Period – 1915 to 1939

A. Board of City of Trade of Chicago v. United States, 1918a. Board of Trade was where grain was bought and sold. 3 kind of sales: (1) spot sales:

sale made after the grain has arrived and get it on the spot; (2) future sales: sales from later that month or some time in the future; and (3) sales to arrive: agreements to deliver on arrival grain which is already in transit or is to be shipped within specified time. Here there was a call rule in effect: at 1:15 there was a call session at which the price was fixed till the Board opened the following morning; any member of the board who bought or sold after that time would pay the call price. Gov’t said this was like a cartel, and even under RR it is illegal for dominant buyers and sellers to fix their price. D argued that it was for the convenience and benefit of the members so people could go home and not worry – it made the Board the central place people came to establish price in the industry, and this was close to perfect competition.

b. Gov’t wanted to strike the evidence introduced by the D – but under the RR, you don’t strike the evidence but let the defendant put it on

Brandeis (for the court)c. Court concludes that the factors justify the rule. When applying the rule of reason,

Brandeis looks at whether it promotes or destroys competition, as well as the nature, scope, and effect of the restraint. It eliminates secret deals, is limited in time and scope, and made it possible for smaller firms to enter the business.

B. United States v. US Steel Co., 1920 a. US steel was 180 combined producers, and controlled 80-90% of the market at some

point, although now had shrunk to 50%. Court rejects an economies of scale defense, b/c they hadn’t consolidated into one firm. Unlike Standard Oil, the competitors were happy. But still need to use rule of reason analysis. Since US steel had shrunk, there was no longer an evil to be corrected.

b. Justice Day (dissent) : U.S Steel is still a big company – it didn’t get big by producing better steel at lower prices, but by coordinating in violation of § 1. If you get to the point where you are violating § 2 by violating § 1, then you have violated § 2 and can’t defend on the grounds that everyone likes you.

c. **Prof Morgan likes Dissent view here, while US Steel may have been “nice” while looked a by antitrust/gov light, poised to be just as “bad” as was when forming later; if making “nice” is the test, discourage behavior antitrust there to stimulate—competition, by encouraging cos to “lay low” and sell less

d. argument that this is the type of case that gives the RR a bad name. C. American Column & Lumber v. US, 1921

a. 365 member mills (5% of the firms in the market) producing hardwood get together with an open competition plan – idea that they would provide information to each other, such as reports on sales, shipping, reports on monthly production, and the reports went out to all members. Letters also went out about an analysis of the market conditions and urged the members to produce less and keep the price up. § 1 price fixing case.

b. Court finds that this purpose was just short of getting together to set prices and production levels. The fact that everyone knew what the others were doing allowed the members to act with complete knowledge about what the consequences would be of their own actions.

c. Holmes (dissent) : we like free speech; there is nothing in the conduct here that binds the members to any action even by merely social sanctions.

d. Brandeis (dissent) : the fact that there is information isn’t evil, but rather it makes markets work and therefore we should permit this kind of exchange. Information is

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costly, and this allows small producers to find out information and compete with the big ones.

e. The court simply got this one wrong – later cases say that there is nothing the prohibits the exchange of information w/o something more.

D. Posner Note: 5 Industry Conditions for when Oligopoly is Likely a. First: a concentrated market of sellers and a lack of fringe market of small firms.

i. While there is no magic numbers, if the largest 4 firms don’t total at least 50% of the market, the need to worry is arguably low.

b. Second: a standard product sold primarily on the basis of pricei. Agreement is more likely and easier when the firms have roughly the same

cost. c. Third: issues going to the need or at least the incentive to collude. d. Fourth: inelastic demand at the competitive pricee. Fifth: an industry in which entry takes a long time.

The Interplay between Patents and Antitrust Law

E. US v. GE Company, 1926 a. Sales Plan: GE sold directly to retailers and wholesalers, but GE said that they owned

them until the consumer bought them. Similar to Dr. Miles, but here the Court upholds it. Here the agents never took title – GE would buy back what wasn’t sold. Court goes out of its way to come up with methodology that avoids a Dr. Miles rule, but Taft notes that this distinction with selling on consignment doesn’t have anything to do with the fact there is a patent. Part of this comes from the change in attitudes to the idea that firms should be able to control the distribution of its own products. This is just an agent agreement

b. License: GE allowed Westinghouse to use the patents provided that Westinghouse didn’t sell for a lower price than GE allowed. Not an issue whether GE had a monopoly – that is the point of a patent. Taft says that it would have been fine for Westinghouse to produce the bulbs and then have GE distribute them under its name, so this system is fine – just allowing Westinghouse to use its name and sell it pricewise as if it said GE.

i. Not uncommon for firms to license their patent and seek to profit from royalties. c. Some say that Taft got this wrong because GE might be protecting itself against

competition by acting as cartel with Westinghouse. F. Standard Oil Company (Indiana ) v. US, 1931

a. Case of patent pooling: a number of companies have infringing ways of packaging gasoline that Rockefeller figured out how to refine, but it doesn’t produce the desired results. Cracking was a way to get more gas and less tar, and there were a number of firms that had patents for conflicting ways to do this, but each time one tried to another would assert patent infringement and the technology was useless. Firms ends up cross-licensing each other in a patent pool and everyone could use each others patents, but they all had to agree to sell for the same price.

b. Court founds that there way no proven monopoly or restriction of competition in the production of either ordinary or cracked gasoline. Better if everyone can be friends and permit the patent pooling.

i. Later cases do cut back on this and say that we don’t want to settle.

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Testing the Limits of the Rule of Reason

G. United States v. Trenton Potteries Co, 1927a. Sanitary potters ass’n engaged in the manufacture or distribution of 82% of the toilets,

urinals produced in the US. Issue in this case was a jury instruction – this was a criminal case, not one for an injunction. Defense wanted instruction that if what they did was reasonable, then they can’t be convicted; Dist judge instead said price fixing per se illegal, and Ds were guilty if jury found allegations to be true.

b. Court said that the question is not whether the result of a given arrangement is reasonable; the issue is whether the practice itself is anticompetitive. Choice is eliminated because of this practice, but can’t really say whether competition is positively or negatively affected. Second, the issue of whether prices are reasonable are foreclosed by Trans-Missouri. This practice is per se unreasonable and this kind of defense is not available even in a case being decided in a rule of reason period. getting together to establish price is per se unreasonable even in a RR period.

c. Appalachian Coals v US, 1933 [not read for class, just mentioned in passing]i. Gov’t created a joint selling agency for coal whose job it was to sell coal

through a single agent – price fixing arrangement. Part of Roosevelt’s solution to the depression.

ii. Court finds that even though this particular arrangement hadn’t been mandated by the gov’t, it was a period in history where we ought to find that anticompetitive activities were reasonable. Holding the plan illegal would only result in the firms merging.

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The Third Period: The Per Se Rule is King: 1940-1974

Horizontal Combinations in Restraint of TradeMarket division, group boycott, monopolization

A. U.S. v. Socony-Vacuum Oil, 1940 – price fixinga. Charge that certain major oil companies combined to raise prices, maintained high

prices, and raise retail prices. This was not a case where big oil companies got together to try to drive small ones out of business, but rather it was system by which each would be responsible for buying excess output of one or more producers on the sport market (gasoline that is refined and ready for sale). Problem in the market was that the cost of production was low, and there were many people taking out oil, and once you started drilling it couldn’t be capped due to pressure problems. When the small producers couldn’t store their oil, they sold it at the current price, and excess supply results and they’d have to sell it at low prices. Dist. Judge said the law was that if you are large enough group and have the power/ability to raise the price, and you seek to do that, it violates § 1 and can’t defend that it was reasonable; but if you can’t show that prices went up b/c of this arrangement, can’t find guilty. Court of Appeals said look at Appalachian Coats.

Justice Douglas (for the court)b. If it is price fixing, then per se invalid. Purpose of raising price and where there is proof

that it contributed to the stability of the price is enough to violate § 1. c. This case marks a change in the law: under § 1, you don’t have to show any

overt act to find conspiracy if there is a purpose OR effect of raising, depressing, fixing, or stabilizing the price – agreement with intent or effect of affecting the price is illegal even if didn’t engage in overt act.

d. Footnote 6: changes lawi. if conspiring to commit crime, guilty of conspiracy even if NOT meet your

purposeii. if you conspire to effect prices, guilty of §1 violation even if not commit overt

act, and even if not have any means to carry it outiii. In this case: cos not have means to carry it out, but still per se invalid

B. Fashion Originators’ Guild of America v. FTC, 1941, group boycotta. ***although case is decided under the FTC Act, the interpretation of§ 5 is parallel to § 1

of the Sherman Actb. the Guild consisted of fashion industry clothing makers, upset by knockoffs. Formed

FOGA and said that the retailers had to boycott these “style pirates” and they wouldn’t allow them to sell their stuff if they carried the clothes of the style pirates.

i. If it had been only a single firm, like Calvin Klein, saying this, then its not a conspiracy – the Colgate rule: any single firm deciding not to do business with another firm isn’t violating § 1, although it might be violating § 2.

c. FTC said that this violated the Sherman Act (by analogy) b/c it restricted competition by limiting the number of sellers you could deal with if you bought from FOGA, and people who wanted to sell the cheap stuff were limited in whom they could deal with; also, loss of freedom b/c shop owners had to show their books and there were secret shoppers – created a private’ gov’t.

C. Radiant Burners Inc, v. People’s Gas & Light Coke Co, 1961, group boycott (note case)a. P produced a burner that failed the American Gas Association test, so no AGA

approval. Utility members of AGS would not sell gas for use in unapproved burner, and consumers were not interested in buying a burner for which they could not buy

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gas. P assert group boycott. S.C. agrees – a conspiratorial refusal to sell gas for burners lacking AGA seal of approval falls within one of the classes of restraints that are per se illegal.

D. Timken Roller Bearing v. US, 1951 (not read for class) – market divisiona. § 1 charge that British Timken, French Timken, and US Timken divided the market for

Timken roller bearings & fixed the price at which each would sell. b. Defense tries to assert that it’s a single enterprise dividing the world and ancillary to

distribution and essential to set up in many countries. Court doesn’t buy it, and says ancillary restraint arguments don’t cut it in a per se rule, and the fact that these were all part of the same corporate organization doesn’t take them out of Sherman Act coverage b/c even members of the same family can conspire.

E. U.S. v. Topco, 1972a. Topco is a cooperative buying organization – bought canned goods and other products

from a variety of producers, and bought in bulk so that it could get max discount, and also developed private label of goods. There were territorial limits set up so that the supermarkets wouldn’t compete against each other, and board must approve new membership. This was a case of market division and group boycott, both of which were per se illegal. Argument that this should be allowed b/c it allows the smaller companies to compete.

b. Majority finds that this is a horizontal restraint and therefore a per se violation of § 1. if the decision is going to be made to sacrifice competition in one portion of the economy for greater competition in another portion, Congress has to make it. This is not a well-regarded decision

c. Burger (dissent): this is the view that has survived. Prior decisions don’t justify this result. Goal sought was the ability to compete; group has lawful purpose and this is fully reasonable.

Monopolization

F. U.S. v. Alcoa, 1945, 2nd Cir (aff’d in American Tobacco) a. Alcoa had patents necessary to produce aluminum, and before they expired d entered

into cartel agreements with foreign producers and contracted with electric company to supply only to D.

b. Court: this is per se illegal. Alcoa wasn’t a passive receiver of its monopoly – no one else was entering the industry b/c Alcoa was able to meet demand b/c it stimulated demand only after it could meet it (some illogical reasoning). It also charged low prices and found other uses for aluminum. Hand is living in the world of the per se rule – the only way that you are not illegal if you are big is if the monopoly is thrust on you b/c you are the only producer.

c. Purposes of reading this case:i. Illustrate analogy to the per se rule in § 2 – not formally a per se rule against

bigness, but as a practical matter such a close approximation might as well be per se

ii. Defining markets and market shares here the geographic market is the united states; explore 4 possibilities for the relevant product market

1. virgin aluminum: product that was produced from the removal of impurities – first time it is done and purest form

2. finished products: stuff like pots and pans3. secondary: recycled aluminum 4. foreign

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iii. district court defines the product market as (1)/(1)+(3)+(4) = 33%iv. Hand defines it as 1+2+3+/1+2+3+4 = 90%

d. How do we determine if the District Judge or Hand is correct?i. Depends on whether the products are interchangeable – what do people view

as an acceptable alternative/substitute. If people believe that things are acceptable substitutes, then they are in the same market.

e. Morgan says that the right formula should be (1+2)/(1+2+3+4) = 64%f. This test of mkt power KEY b/c shows attention paid to structural detail as step

in §2 analysis, this case foundation for modern monopolization law!!g. This case also depends on structural analysis, not necessarily condemnation of

“bigness”

i. U.S. v. Griffith, 1948h. Defendants operated movie theaters; booked films and demanded exclusive rights to

be the first to sow the films. Dist ct found that competitors had difficulty getting rights to desirable films, but the defendants hadn’t tried to put competitors out of business.

i. Specific intent to monopolize need not be shown; intent can be inferred from context and behavior. When market dominance obtained by § 1 violation, essentially have per se violated § 2 (same proposition as dissent in US Coal).

j. Monopoly power, even if lawfully obtained, violates § 2 if you can show a purpose to preserve it or misuse it in the future – don’t need to wait for bad acts.

G. U.S. v. United Shoe Machinery Corp, 1953, District Courta. Charge that United had been monopolizing interstate trade and commerce in shoe

machinery industry; supply over 75% of the current demand in the American show market and had patents for machines that were used to process shoes. By the time of this case, the patents were expired, and there were other machines and methods available. United would lease equipment rather than sell it, and the factor would pay based on the number of shoes that were made; this reduced the expense of a shoemaker, b/c he would pay less if he had a bad year. Also, United did exclusive repairs. 10 year lease, and often United would update machines. Had to use United machine to capacity before you could bring in another; if not, paid as if you had been using the United machine.

b. Court ultimately concludes that the lease terms were the problem b/c of the length and the requirement of full capacity. Tries to say there is price discrimination here b/c United charged more for machines were they were the only providers and less for the ones where there were other provides, but it is using the term wrong.

c. Remedy: can’t break up United into the mini-firms it once was, b/c it was one firm at one site. If it were possible for people to buy the machines and get out of the troublesome clauses, it would be ok.

d. Supreme Court affirms, but later orders the breakup of United Machine b/c people continued to buy and lease the machines.

e. Court had talked about 3 different approaches to determining illegalityi. Monopolization in violation of § 2 if it has acquired or maintained a power to

exclude others as a result of using an unreasonable “restraint of trade” in violation of § 1 of the Sherman Act.

ii. Violation of § 2 if it (a) has the power to exclude competition, and (b) has exercised it, or has the purpose to exercise it.

iii. Overwhelming share of the market not solely due to superior skill or efficiency

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f. Note Case: U.S. v. Grinnel Corp, 1966 (note case)i. Case involved charge of monopolization brought against a national firm that

provided property protection service from central locations within a city, and claimed insurance company discount by having the alarm system. Gov’t wants the product market to be defined as “central station protection service” that was “accredited by insurance companies.” Defendants wanted to included other protection services, such as guard dogs, guards on the property, and even sprinkler systems as fire protection. Court sides with gov’t; shows that the Court is willing to define markets however will condemn the practice.

H. Lorain Journal and Otter Tail Casesa. although a single firms refusal to deal can’t be a § 1 violation, it can be a § 2. b. Lorain Journal: at least under some circumstances, entry can be so difficult that one

firm has a monopoly position and refusal to deal can be a § 2 violationc. Note case: Walker Process Equipment v. Food Machinery & Chemical Corp, 1965

i. Patent holder can be deemed to be violating § 2 if D can be shown to have obtained the patent by fraud.

I. Utah Pie v. Continental Baking Co, 1967 – predatory pricinga. Per se approach to § 2; although case is decided under § 2 of Robinson Patent act

(Clayton), this can be seen as case of predatory pricing and therefore § 2 Sherman.b. P is a frozen pie company is Salt Lake city – had about 2/3 of the market. 3 companies

were selling elsewhere, enter Salt Lake City by lowering price below Utah Pie. Under Robinson Patent, problem is they were selling pies below what they were selling them for in other parts of the country. Issue of whether under Robinson Patent competition was injured or tendency to create a monopoly. Local jury finds that it injures competition; Court of Appeals reverses, saying no injury and competition increased b/c of lower prices.

c. S.C. said competition eroded b/c others may not be able to afford to stay in the market. Intent to dominate by Pet Pies, which admitting to targeting up, and if you dream of taking over the market, intent is enough to violate § 2 of Sherman.

Vertical Arrangements Perceived as Exclusionary Exclusive dealing and tying arrangements

J. International Salt v. United States. 1947; tyinga. Made two machines that injected salt into products; one machine required you to buy

all your salt from Int’l; the other machine you could buy the same quality salt from someone else, but Int’l had chance to match the price. Int’l Salt tries to defend that they have an interest in the machines being returned in good condition and don’t want it corroded by low quality salt, and can buy elsewhere if it’s the same quality and Int’l won’t match the price.

b. § 1 violation: Court finds that there is a substantial lessening of competition in the world of salt b/c other sellers would have to beat Int’ls price, not simply match it. Court says it would be ok to specify the quality. Tying is per se illegal (socony); price fixing is illegal per se. Also violates § 3 of Clayton: substantial decrease in competition or tendency to monopolize – Court looks at the amount of $ sold, not market share.

c. Int’l probably wanted to do this b/c it served as a monitoring device (see how valuable it is by how much it is being used), protect good will, and make more money (and they could price discriminate based on how much people demand it).

d. The court never says that something sold in a package is per se illegal.

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K. Standard Oil of CA v. United States, 1949, exclusive dealinga. Charge of violation of § 1 of Sherman and § 3 of Clayton. b. If you ran Standard Oil gas station, required to et your batteries, tires, oil, etc from

standard oil – if you had the standard oil name, had to deal with them exclusively. D argued quality control to protect reputation.

c. Gov’t had thought that this was Int’l Salt. d. Court: Court distinguishes Int’l Salt; that had involved a patented product; here we are

not dealing with tying, but rather a requirements contract. The court thought this was a great deal – unlike Int’l where people were forced to buy, but rather provided a steady supply of gas. Uses a rule of reason here and finds there is a substantial lessening of competition when all these companies use this

e. Now exclusive dealing is subject to rule of reason and tying is subject to per se rule.

f. Note case: Tampa Electric v. Nashville Coal Co, 1961 (note case): Court confirmed that in exclusive dealing cases it is market share, not absolute sales, that determines the substantiality of effect on competition.

L. Single Product Problem: a. Times-Picayune Publishing v. US, 1953:

i. Newspaper published twice daily; said that if you bought an ad in the morning paper, had to buy one in the afternoon paper also – the morning paper had no competition; the afternoon one did. Justice Dept said this violated § 1 b/c its monopoly on the morning paper was being used to compel people to buy ads in the afternoon paper they didn’t want and decreased competition for ads in the afternoon paper.

ii. Issue of whether this was one product or two – the Court said that a newspaper ad is a newspaper ad, and there was no problem with the requirement to buy both ads – the product that is being sold is an advertisement in the paper.

b. Susser v. Carvel Corp, 1964, 2nd Ciri. Franchise selling soft serve required to buy their mix from Carvel, as well as

specially shaped cones and spoons. Court said that Carvel could require franchisees purchase this stuff – people go to Carvel expecting carvel ice cream and you can’t get the same if you buy it elsewhere

c. Siegel v. Chicken Delightsi. Involved requirements that franchisees buy their cooking equipment, dry mix

coating for the chicken, and special M. FRANCHISING/TYING ISSUES

a. Chicken Delight (1971)—i. Q: Is the product required to be purchased the “essence” of the franchise? ii. A: When TM and product = same, NOT tying, OKiii. Can’t require franchisee to buy chicken from franchise, but can require certain

grade.iv. Carvel CAN require purchase of it’s ice cream—which is “essence” of Carvel

franchise and TM (people expect Carvel ice cream)v. A “Product Distribution Franchise”

b. McDonalds (1980)i. Franchising looked at diff NOWii. Franchisers can offer franchisees a complete method of doing biz, who pay for

more than right to use TM, but right to become part of system of doing biz that ensures success

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iii. Q for this type franchise is: Not whether allegedly tied products associated in public mind w/TM, but whether they are integral components of the business method being franchised

iv. A “Business Method Franchise”N. Northern Pacific Railway v. US, 1958 – still the rule for tying cases

a. Land grant railroad – sold blocks of land, and whoever bought/leased the land had to agree that they would ship anything made on the land on northern pacific provided that its rates (and in some cases its service) were equal to those of competing carriers.

Black (for the court):b. tying arrangements are per se illegal. c. Test to determine if it’s a tying arrangement – (we still use this today)

i. There is tying whenever a party has (1) sufficient economic power with respect to the tying product to (2) appreciably restrain free competition in the market for the tied product AND (3) a “not insubstantial” amount of interstate commerce is affected.

d. Uses a flour/sugar example to show how something might not be tied i.e. if one seller of flour requires that you buy sugar in order to get the flour, it won’t be a tying arrangement b/c there is a lack of sufficient market power – can use go elsewhere.

e. Court finds that the railroad had sufficient market power – which is a strange result b/c there was plenty of land available, and the railroad owned only a small percentage. The fact that people signed these agreements was found proof of this market power. But in reality, people would probably ship on Northern anyway.

O. United States v. Loew’s, 1962a. Film distributors sold to tv stations, but would only sell the popular movies if the

undesirables were bought as well. b. Court finds that this is illegal and is a tying arrangement – violation of § 1. There is an

individual demand for the movies and people should be able to buy them individually. Reaffirms the standard is that seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product (from N. Pacific). By reason of copyright, defendants had a monopoly over the good movie, and used power to get people to buy the others.

c. Morgan points out that if you had to sell them individually, would have to sell each for the lowest price and would make less money – argues that not everyone values every item in a package the same (i.e. lifesavers).

P. Fortner Enterprises v. US Steel, 1969 a. U.S. Steel offered builders a really good deal – if they bought steel houses, got a loan

on the price of the house, the land, and really good terms so that it was a no-lose situation for the builders. Fornter wanted to go to US Steel credit company and get the same terms w/o having to build steel houses. Fortner sues on the grounds that the main product was money that US loaned, and tied-in the steel houses. The only way this makes sense is to argue that US Steel had a monopoly on money.

b. Court finds that this case involves “tying arrangement of the traditional kind” and reverses SJ in favor of US Steel.

c. Dissent: Any form of financing is really just a method to discount price, wrong to make this per se illegal; a form of competition that should be encouraged!; almost all product sales have some side features (i.e. free delivery)

d. US Steel could argue, NOT 2 products, just steel homes w/great financing, and they not have sufficient economic power w/tying product, loans

e. NOTES: a jury and later a judge in a bench trial found for Fortner; Ct of Appeals affirmed. When it came to Supreme Court, reversed. If the evidence merely shows that credit terms are unique because the seller is willing to accept a lesser profit – or incur

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greater risks – than its competitors, that kind of uniqueness will not give rise to any inference of economic power in the credit market. The unusual credit bargain offered to Fortner proves nothing more than a willingness to provide cheap financing in order to sell expensive houses.”

HORIZONTAL VERTICALPrice fixing resale price maintenanceMarket division territorial allocationGroup boycott group boycott (not many)

Dealing with Dealers

Resale price maintenance

Q. Klor’s Inc v. Broadway-Hale Stores, 1959 (not read for class)a. Demand made that none of the appliance sellers should sell to discount stores. Court

says that it’s a vertical group boycott and per se illegalR. U.S. v. Parke, Davis & Co, 1960

a. Parke Davis had resale price maintenance policy in its wholesalers and retailers catalog. Although Dr. Miles said that you can’t set prices, but here they tried to argue that this was more like Colgate – they were only doing business with those they wanted to. Told wholesalers that wouldn’t sell to those who didn’t observe the price policy or sold to retailers who didn’t.

b. Court struck down this practice – here Parke Davis took steps to insure compliance. Court said that Colgate was never meant to be a large scale exemption from the Dr. Miles rules against resale price maintenance. Resale price maintenance as practiced in this case is per se illegal. when the manufacturers actions go beyond mere announcement of a policy and the simple refusal to deal, and he employs other means which effect adherence to his resale prices, then he has put together a combination in violation of the Sherman Act. The manufacturers used distributors to implement this policy- it was no unilateral like in Colgate.

i. Colgate doctrine allows manufacturer to announce price maintenance policy and enforce it by refusing to deal w/customers who don’t follow policy. HOWEVER, there is unlawful combination where a manufacturer “enters into agreements expressed or implied with all customers which undertake to bind them to observe fixed resale prices, EXCEEDED Colgate doctrine

c. Criticism: Court fails to realize that retailers were not only carrying Parke Davis products, and there ability to set price were ultimately controlled by competition. This would change if it turns out that people view Parke Davis products as unique.

d. Simpson v. Union Oil (not read for class)i. Ordered to sell for 30 cents a gallon; instead sold for 28 cents. Union Oil

defended on the ground that it consigned the gas to Simpson rather than outright selling it. Douglas says that consignment arrangements are permissible if you do something like go to a local antique store and sell one rug at a time – but if you are a dealer setting up a consignment arrangement for all your products, that is illegal. GE is distinguished b/c there were patents involved. Here it is unfair to deny Simpson the right to sell at a lower price.

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Territorial Allocation

S. White Motor v. US, 1963a. Restrictions imposed on what territory the dealers can sell cars – weren’t allowed to

sell outside your allotted territory or to people outside of your territory. A second restriction was that you couldn’t sell to federal or state governments.

b. Court: horizontal arrangements to divide territory are banned, and court sees if it should extend this to verticals arrangements. Remands this for trial under a rule of reason (but if this was horizontal it would have been per se)

c. Dissent: this is “one of the most brazen violations” and it straight out market division – should be per se illegal (which is consistent with the per se rule period).

d. Court did not apply a per se rule here b/c it felt that it didn’t know enough about the impact of these restraints to see if there is such an effect on competition as to have no redeeming virtue.

e. Note case : U.S. v. GM, 1966 i. Dealers cooperating with “discount houses and “referral services.” The

discounters tended to buy from where they sold. Dealers weren’t happy about this, and GM told dealers that they were violating location clause by selling to discount houses. Court found this was Klors and Parke Davis. Because one of the prime purposes of the practices was to keep the prices up, this agreement was per se illegal.

f. Note Case: U.S. v. Schwinn – overruled by Continental v. GTE Sylvania i. Schwinn was family owned business and had once been America’s largest

seller of bikes. Sold bikes in three ways: (1) traditional wholesaler and retailers who in turn sold them to the public; (2) sold them under consignment or agency agreements with distributors; (3) “Schwinn Plan” under which customers placed orders through retail dealers to whom the bikes were shipped by Schwinn for delivery to identified purchasers. Schwinn set up territories, and tried to justify the territories by saying that it maintained image and quality.

ii. Court found that the territorial limits were reasonable. T. Albrecht v. Herald Co, 1968 – overruled by State Oil Co. v. Khan

a. Suit for violation of § 1 – D published morning paper and P was one of the people who had a route. P charged above the maximum price, and the paper wasn’t happy and told customers that it would offer them a lower price if they switched to their delivery. Only 200/1200 switched. Since the paper didn’t want to actually deliver, it gave the route to another carrier.

b. Court: if there was a combination in Parke Davis, then there is one here. First problem for Albrecht was whether there was a conspiracy at all – did the paper act unilaterally because b/c they didn’t like him? The court found an agreement between the newspaper and the new distributor – a conspiracy to sell at a price promised. The combination formed by the defendant to force petitioner to maintain a specified price for the resale of newspaper which he had purchased from defendant constituted, without more, an illegal restraint of trade under § 1. In general, exclusive territory is ok for newspaper b/c it is the only efficient way to deliver them.

c. Dissent (Douglas): This is a rule of reason case stemming from Standard Oil. d. Dissent (Harlan): justification for per se rule in the case of minimums has not been

shown to exist in the case of maximums. Defendant’s conduct was in furtherance of, not contrary to, the purposes of the antitrust laws.

Price Discrimination: The Robinson-Patman Act - This is §2 of Clayton Act as amended in 1936 by Robinson-Patman Act

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- Same statute saw in Utah Pie- §2(a) = illegal to price discriminate among purchasers of commodities of the same grade and

quality where the effect may be to substantially lessen comp or tend to create a monopoly or injure comp

- §2(b) = burden of rebutting a prima facie case is on D by showing that his lower price was made in good faith to meet the equally low price of a competitor

- §2(f) = forbids knowingly receiving a discrimination

Monopoly

U. General Points:a. Types:

i. horizontal: among competitors at the same level of distributionii. vertical: among firms in different levels of the distribution chainiii. Conglomerate: two firms which are not competitors nor have business dealings

combine and the argument is that there isn’t any substantial lessening of competition

b. § 7 of Clayton: sought to make more certain the ability to challenge such consolidations before they were a fair accompli.

c. U.S. v. Columbia Steel, 1948i. Tested whether the statutory language should be read also to prohibit

functionally similar but formally different kinds of consolidations. US. Steel was largest rolled steel producers in country; Columbia Steel was wholly owned subsidiary and largest rolled steel producer in the Western U.S. Columbia and US steel had contracted to buy the assets of Consolidated. Gov’t opposed sale of consolidated to U.S. Steel b/c (a) U.S. Steel would be able to fabricate more of its own steel and not use other fabricators, and (b) competition for those fabricated products in which U.S. Steel and Consolidated competed would be eliminated.

ii. Supreme Court saw this transaction as simply allowing a steel producer to find a way to fabricate products in a new territory. Vertical integration can’t be allowed to be held violative of the Sherman Act. Clayton Act didn’t apply b/c this was an asset acquisition rather than a stock purchase. No violation of § 7 b/c (1) U.S. Steel had acquired assets of Consolidated which is not reached by § 7; and (2) vertical acquisition – not reached by § 7.

d. Celler-Kefauver amendments to § 7 : brought about as a way to correct the § 7 deficiencies – Brown Shoe is the first case decided under the new § 7

V. Brown Shoes Co v. US, 1962a. Suit initiated by Gov’t for injunction to prevent merger between Kinny and Brown Shoe

Company b/c it would violate § 7 of Clayton. Brown was 3rd largest shoe producer; Kinny was family oriented shoe store. Both make and sold shoes, but can analyze the case as Brown as producer and Kinny as seller b/c that is how they were known.

b. Three different product markets here: mens, women’s, and children’s shoes. Outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. Geographic market was defined as metropolitan areas larger than 10,000 people Ct doesn’t say the entire US of the market b/c then Brown would have a smaller market share; also, customers won’t travel for to get shoes.

Warren (for the court)

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c. Finds the merger to be invalid. Adopts the Dist Ct’s findings that the shoe industry is being subjected to a cumulative series of vertical mergers, which, if left unchecked, will be likely to “substantially lessen competition.” Merger may tend to lessen competition substantially in the retrial sale of men’s, women’s, and children’s shoes in the overwhelming majority of those cities and the environments in which Brown and Kinny sell through owned or controlled outlets.

d. Court looks at why Congress adopted the amendments to § 7 – wanted to promote competition and preserve the small business. Court finds that Congress recognized that consolidation kind of creeps up on you and there can be an ongoing trend – idea that it was appropriate to intervene on the basis of probabilities and look at the context of the industry – don’t need to prove any direct or imminent impact. if there is negative effects in any line of commerce in any section of the country, you have a basis for striking the merger

e. If Brown and Kinny want to get bigger, the preferred method is internal growth. Court would be willing to tolerate mergers of tiny businesses to let them get to a level where they would be able to compete, but not going to let market leaders combine. Also sets forth the failing company idea: if the company is going out of business, no harm in allowing it to merge b/c the competition would have been gone anyway.

f. Vertical aspects of the merger:i. Concern that Brown would be the only supplier to Kinny and Kinny wouldn’t sell

the other manufacturers shoesii. Argument that if others see that this is a good thing then they might do it as

well, and end up with a buddy system.

W. United States v. Philadelphia Nat’l Bank, 1963 a. Proposed merger of two banks in the Phili area – these were the 2nd and 3rd largest

banks in the area. b. Product market is defined as anything that you can get a bank (i.e. commercial banking

services). Geographic market: the 4 country Philli area. Most people don’t shop around for banks, but there are some customers that shop on a national basis and would go to NY or another area to get a better deal on a loan. This was important b/ the Philli banks wanted to be competition with the NY banks – there was a limit on the total amount of outstanding loans a bank can have and need a substantial asset base to make loans to the biggest companies.

c. The banking authorities actually thought that this was a good idea – DOJ challenged it despite this.

d. Court established an almost per se rule – says that a merger which produces a firm controlling an undue percentage share in the relevant market, and results in a significant increase in the concentration of firms in that market, is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have anticompetitive effects.

i. Court looks that as a result of this merger the top 4 banks would control 78% - court also looks at what the top two firms would have and what this firm would have.

ii. Essentially the court is creating a rebutable presumption when firm gets to 30%+ of the market that it is anticompetitive – but it turns out to be almost impossible to rebut.

e. Defenses offered: i. This was the only way to reach the suburbs court’s response it to open a

new branch (but this would end up hurting the smaller banks, and in the end the consumer and the gov’t end up paying).

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ii. Increase lending limits so that they could compete with out of state large banks – essentially would end up increasing competition in one market while decreasing it in another. Court’s response is that the statute doesn’t say you balance – if there is a substantial lessening of competition the merger fails.

f. Note case : US v. Von’s Grocery: Von’s was third largest grocery chain in LA area and Shopping Bag Food Stores was sixth, but together only had 7.5% of market. Court doesn’t allow merger – noted that both chains had roughly doubled in size in the preceding 10 years, and acquisitions and mergers of groceries were preceding so rapidly in the LA market that the gov’t could enjoin this merger of small but successful chains.

Joint Ventures

X. U.S. v. Penn-Olin Chemical Company, 1964a. Pensalt was located in Oregon; Olin was in Ohio – lots of trees in the SE and paper

production was moving down there, and sodium chlorate is a bleaching agent used in paper production. Olin licensed a patent to Pensalt; Pensalt would then give Olin the stuff to Olin to distribute. Also had American Potash and Hooker who were located in the SE. Pensalt and Olin each though about entering the industry individually, but decided not to do it, and agreed to enter together as Penn-Olin – they entered in a way that could sell for a common price.

b. Court looks at this as § 7 issue rather than § 1 issue so it can use the substantial lessening test rather than force them to use per se rule. Under § 1 analysis, it is dividing the market; under § 7, it is viewed as not reducing competition b/c there is no lessening of competition from before the venture started and are better off with one real firm rather than two potentials.

c. District court had said if P and O had entered the market, there would be a 4 firm market; now its reduced to 3 firms and can say its lessening of competition. Supreme Court says that now have three firms, and would have the same result if either P or O hadn’t entered as independent, but if one had entered rather than joining in a joint venture, the other would have remained a potential entrant – and would have 3 actual and 1 potential. Argument is that having potential competition has competitive significance to cause the existing firms to keep service up and prices low to discourage potential investor from becoming an actual one – the removal of potential is sufficient to be a substantial lessening of competition. Remands to Dist Ct to see if there really would have been a potential.

d. Test: to strike down merger under potential comp theory, must be showing that:i. Reasonable prob that acquiring firm, but for this merger, would have entered

the mkt in the near future1. reas prob = if D has capacity and incentive to enter

ii. that the entry through other means would have resulted in a deconcentrated mkt or procomp effect

iii. the mkt under review is concentrated

Y. FTC v. Procter & Gamble, 1967a. Firms made household products – Clorox was making liquid bleach and had roughly

half of the market. P& G wanted to acquire stock of Clorox – it would be another P&G brand. P&G argued this was a product extension merger – it was not a competitor in the bleach industry. Notion that this was a conglomerate merger. Relevant market was liquid bleach.

b. Court never really bought the argument that b/c a company is large an acquisition by it is illegal – have to show substantial lessening of competition. To do this, can show?

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i. Eliminate potential competition of acquiring firmsii. Substitution of big firm in market for smaller; big firm can reduce competition of

beach industry by raising entry barriers and dissuading smaller companies from aggressively competition.

iii. In this case, P&G was very strong in advertising and buying ads cheaply and bulk, and hard for other companies to compete with it.

c. Main two arguments: (1) dominance created that would have made new entry virtually impossible and (2) there would have been loss of potential competitor

d. Harlan (concur): i. Majority relied too much on assumptions and not on the reasonable probability

of what P&G would do.ii. This is such a competitive industry and so easy to enter that the price is quite

competitive and profits are really law, and if that is true, then Clorox isn’t worrying about P&G entering if it doesn’t acquire Clorox, and therefore no loss of potential competition if the merger happens.

e. Note case : US v. Falstaff Brewing, 1973 i. Marshall (concur) gives three situations where potential competition is

important:1. demonstrated expectation to enter and firm decides to merge instead2. perceived potential entrant3. dominant entrant:

a. firm that enters by merging is so large that other firms can’t survivor or will follow the leader.

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The Fourth or Current Period: Since 1974

The Transition Period

A. US v. General Dynamics Corp, 1974 a. This is the first case in which we see a change in the direction of the court, but this is

not the case that is traditionally viewed as changing it – that case is GTEb. General dynamics happened to acquire one of the merging corps, Material Service.

The other party involved was Freeman coal mining. Gov’t claims that this acquisition violated § 7 of Clayton b/c the takeover substantially lessened competition in the production and sale of coal in either or both of two geographic markets. Gov’t said that as a result of this geographic merger there would be a substantial lessening of competition b/c they had roughly 20% in Illinois and 10% in the region, and there was a general decline in the number of firms in the region.

Stewart (for the court) (who said previously that the gov’t always wins)c. In Phili Bank, the court said you need to see whether the numbers alone are enough to

shift burden to D to justify why this is ok – even though this was only 20%, court was willing to find the burden shifted.

d. Court finds that this was NOT a violation of the Clayton Act. The decline in the number of coal firms had changed, but it was a result of the shift in demand for other sources of energy. Looked at the ability of the company to compete – based the analysis on the new contracts the company would be able to get in the future- court saw most of the coal was already committed in long term contracts. Essentially look at the effect that the firm can have in the future – the answer here was virtually none at all b/c they don’t have coal in reserves they have not contracted to sell.

i. Dissenters respond that this sounds like a failing company defense. But the Court says this isn’t a failing company defense b/c they aren’t asking the company to show they would be going bankrupt – this is similar, but not the same.

Dissenterse. Criticized the failing company defense. Also argued that although United had not been

a deep shaft miner, could have gone out, bought some deep shaft land, and entered the business.

B. Continental T.V. v. GTE Sylvania, Inc, 1977a. Issue of violation of § 1 by entering into and enforcing franchise agreements that

prohibited the sale of Sylvania products other than from specified locations. b. Sylvania makes tv sets, and traditionally had sold through wholesales; when they see

their market share declining, decided to franchise certain distributors as Sylvania dealers and give them an exclusive right to distribute tvs in the area (but were allowed to sell other brands as well). There was no guaranteed monopoly, but general understanding that would be rewarded if you did well. Sylvania increased from 2% to 5% nationally, but only .5% in San Francisco. Sylvania franchised another dealer about a mile away – Continental got upset and wanted to open a store in Sacramento, but Sylvania refused to deal with them there.

c. District Court: thought the case was controlled by Schwinn – the tv sets were sold to Continental who could then take them anywhere an jury verdict for Continental. Court of appeals said Schwinn was a case that should be limited to its facts; this arrangement was less anti-competitive – case sent back to Dist Ct to think about a case in a larger setting than the per se rule.

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Powell (for the court)d. Doesn’t try to distinguish Schwinn, but says it is wrong and over-rules it. e. Per se rules of illegality are appropriate only when they relate to conduct that is

manifestly anticompetitive. Court finds that this is not such a practice. This is a vertical nonprice restraint and therefore should be analyzed under a rule of reason. Looks at the positive features of interbrand and intrabrand competition.

f. Free rider issues: Court finds that if you give someone a territory, you will encourage them to really develop the territory by advertising and investing capital into the market b/c don’t have to worry about someone free riding off of your work. If there are multiple distributors, tendency to free ride by waiting for the other person to advertise and then come in and take the customers. This type of system protects distributors against this type of free riding and exploitation. Doesn’t say that there can’t be inquiry into how much interbrand and intrabrand competition is lost, but will be different areas depending on the product and should be for manufacturers to decide subject only to the examination whether there is no justification for what they are doing.

g. This case over-rules the per se rule and is seen as a triumph of the rule of reason once again, and seen as really starting the current period. Schwinn over-ruled, and vertical territory allocation is subject to Rule of Reason analysis.

h. What did this do to Topco?i. Topco was seen as horizontal division rather than vertical as here, and later

cases make it clear that Topco wasn’t over-ruled. White (concurring)i. Agrees that this is not a per se violation of the Sherman Act and should be judged

under rule of reason, but doesn’t think that Schwinn should be over-ruled.

C. Brunswick Corp v. Pueblo Bowl-O-Mat, 1977a. Allegation of violation of § 7. Brunswick made bowling equipment and would acquire

bowling alleys from bankruptcy sales to salvage what they could. Pueblo said that it would have done better if the bowling alleys went out of business or were acquired by someone other than Brunswick, who had the capacity to lessen competition in the markets in entered by driving smaller competitors out of business.

b. In order for this case to make sense, need to assume the gov’t would have won against Brunswick, and to do that would have had to argue P&G, who is a giant in the industry that buys up things and will dominate after. In reality, if the government would have been up against the failing company doctrine plus the fact that the merger law was changing.

c. Pueblo has standing by the fact that they were hurt by the fact that Brunswick would be operating bowling alleys. Court agreed that they suffered a harm, but found it was not an antitrust injury. For a private firm to file an antitrust action in the current period, has to be an injury the antitrust laws were designed to protect. Antitrust laws want to impose this injury b/c it is causing competition.

d. For private actions to succeed now, have to be based on the interests of the consumer, not the interest of the competitor.

e. Note case : Hanover Shoe v. United Shoe Machinery: Only the first person to over-way can sue; those who the increased prices are passed onto can not sure

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The Per Se Rule v. Rule of Reason Debate Continues in § 1 Cases

Horizontal Price Fixing

D. Note case : Goldfarb v. Virginia State Bar, 1975a. a minimum fee schedule adopted by a voluntary bar association violated § 1 per se.

the fact that the lawyers were “learned professionals” did not mean their actions were not involved in ‘trade or commerce” and even fundamental standards of professional ethics were subject to § 1 analysis.

E. National Society of Professional Engineers v. US , 1978a. The ethical rules provided for a two step process; (1) first, had to have a phase of the

competition that was based on factors other than price. (2) second, once engineer chosen, then discuss price. The Engineers try to justify this by saying that it insures good quality and prevents public harm – the engineer is chosen on the basis of quality and not simply being the lowest bidder. Gov’t doesn’t try to argue that there is no competition, but rather there is no competition on price terms. This isn’t like Addyston Pipe – the parties didn’t agree to charge the same price or one would charge the lowest – but it still was a restriction on competition on price. Client can reject the price, but can’t compare them.

b. Court: said the rule of reason is preferable to per se rule, but some agreements are so plainly anticompetitive that no elaborate study is needed to establish their illegality. Questions whether this is such a case. Safety concern doesn’t go to a question of increasing competition. This was not price fixing, so not per se illegal – but fails under RR b/c effect is to decrease competition, thus increasing price, preventing price comparison – so it is invalid.

c. 2 categories of antitrust analysisi. first category: agreements whose nature and necessary effect are so plainly

anticompetitive that no elaborate study of the industry is needed to establish their illegality – they are illegal per se

ii. second category: agreements whose competitive effect can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed

d. Court misses the point that here there would be public authorities who take the blame for bad work of the engineers, and the problem would be that of the next administration; therefore, safety needs need to be taken into account.

e. Professional Engineers makes clear also that Sherman Act does NOT permit competitors to agree on one form of competition over another, this interferes w/free and open markets; customers should be able to decide if they want higher quality or lower-priced buildings

F. Broadcast Music v. CBS, 1979a. BMI and ASCAP sell blanket licenses which give the right to use music in their libraries

– CBS claims this is price fixing and almost like a cartel. CBS thinks they would have paid a lot less if they didn’t have to buy the blanket license.

b. Court says that the critical question is whether this practice would restrict competition and lower output – need to see if naked restraint of trade with no purpose other than stifling competition. Court says just because there is an impact on price doesn’t mean that the action will be per se illegal or even an unreasonable restraint – this is a total change from Socony Vacuum. This leaves the door open even as to agreements that go directly to price to show there is a sufficient justification to render them lawful.

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c. One argument made in this case is that the costs of dealing are greatly reduced and the ability to deal is made more efficient – known as market creation defense. The court saw this restraint as adding a product rather than eliminating one. No one is forced to deal with a blanket license – they are just an option. The extent of this restraint is simply adding something to the world that didn’t exist before b/c can still buy individual songs or deal directly with the artist.

d. Is it reasonable? The efficiency analysis looks at 3 things:i. whether challenged conduct is reasonably necessary to achieve the cost-

reducing efficienciesii. whether the restraint that follows is actually necessary to the market integrationiii. whether the efficiency achieved by integration outweighs the adverse effect of

the restrainte. So did this eliminate the per se rule in price fixing cases?

i. No – Catalan v. Target Sales: an agreement not to grant a discount equal to the value of money for the 30 days was the functional equivalent of price fixing and per se illegal.

Reasons to save a practice:- tends to create a market – BMI- whenever the efficiencies produced are create enough

G. Arizona v. Maricopa County, 1982 (not read for class)a. Importance of case is what is says about doctors. Doctors in Phoenix who were not

members of HMOs tried to create a system so they could be competitive with HMOs and would agree with insurance companies as to doctors fees, and patients would be charged a fee what would cover all their medical care as an HMO would. Doctors tried to argue that this is a BMI type arrangement in which a new product was offered; Arizona challenged it as price fixing agreement. Supreme Court found that it was illegal per se for the doctors to establish even the max charged.

H. NCAA v. University of Oklahoma, 1984a. NCAA regulates certain things relating to college sports programs – here it was

regulating the showing of televised college football games. Some of the restrictions included requiring 82 different schools had to be on tv w/in a 2 year period and no school could appear on tv more than 6 times and 4 times nationally. Try to form the CFA, but NCAA said it would suspend all the sports of the schools that participated in the CFA

b. Dist Ct: applies the rule of reason and found competition was restrained. Ct of Appeals says its per se price fixing.

c. Sup Ct: NCAA tried to argue that it lacked market power and couldn’t really control price b/c there are many other things to watch on tv. Also argue that it wants to maintain competitive balance and in order for people to watch there has to be suspense – no one will watch if there are a few dominant teams.

d. Court uses a rule of reason and strikes this down. Court uses a quick look rule – need to look at the arguments, but not in excessive detail – b/c using RR doesn’t mean that you have to look at every single detail.

i. Court finds there was market power – this plan reduced output. College football is a unique product with its own market and has a special demographic of people. Also, the price was the same no matter which team was being shown and the price was fixed. Unlike BMI, the schools were not able to license their own games.

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ii. Protection of gate receipts is not a valid justification, and neither does protecting the competitive balance.

e. Dissent: worried that college is more than football, and don’t want schools to turn into football factories.

f. Note – this is a first case in the modern period explicitly to apply a rule of reason analysis, yet find the practice violated § 1.

g. Note case: U.S. v. Brown University, 1992:i. Ivy overlap group had agreed as to how much scholarship aid they would give a

certain student. Dist Ct said price fixing and antitrust violation; Court of Appeals said its not b/c colleges not in trade or commerce. This case never went to the Sup Ct b/c the Clinton administration thought this was permissible and didn’t appeal.

** in the modern period, need to look at all the facts and try to reason carefully as to what it is that is anti-competitive and to what extent you are able to argue its anticompetitive

Group Boycotts by Competitors

I. Northwest Wholesale Stationers v. Pacific Stationary & Printing, 1985a. Northwest was a group that acted as a purchasing cooperative (like Topco) – it would

buy in bulk and sell to anyone, but members would get a rebate at the end of the year. Northwest made a decision not to allow those who were both retailers and wholesalers, which Pacific was, but had grandfather clause. Pacific changed owners w/o telling Northwest, which violated a bylaw of Northwest and NW kicked them out for not telling them. Pacific brought a claim that this was a violation of § 1 and was per se violation b/c it is a group boycott.

b. Dist Ct used rule of reason and granted SJ for NW; 9th Cir rev’d, saying per se liability b/c no procedural safeguards.

c. Court: decision to expel was in restraint of trade, but need to see if it was unreasonable. Wholesale purchasing cooperatives such as NW are not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects. Unless the cooperative possesses market power or exclusive access to an essential element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted. The rebate at the end of the year is not such an essential element of ability to do business that it should be pre se illegal.

J. Rothery v. Atlas Van Lines, 1986 – this is ONLY a court of appeals casea. Claim of group boycott in violation of § 1. Altas operates a household moving goods

business – biggest asset was their trademark, phone number, and ICC license allowing them to engage in interstate transport. Case arose after de-regulation of trucking and the Atlas licenses not longer necessary. When you called a local company, they would move under their name and their license rather than through Atlas and be able to undercut the price. When Atlas found this out, said that they would only deal with companies that dealt only with them, and if they wanted to do it on their own they’d have to use their own name.

b. Court: doesn’t deny that this is a group boycott, but finds that any restraint on trade is ancillary and the per se rule doesn’t apply. Boycotts never per se illegal – use RR.

c. Under RR:i. There won’t be any significant anti-competitive effect b/c Atlas won’t be able to

raise prices and reduce outputii. Pro-competitive in that it avoids the free rider problem

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iii. Restraints ancillary, Topco & Sealy overruled, Addyston Pipe is the law of the land the Sup Ct NEVER adopts this.

K. Note: Boycotts as a Form of Protest a. Missouri v. Nat’l Organization for Women, 8th Cir, 1980: antitrust laws were not

designed to regulate solely political activitiesb. NAACP v. Claiborne Hardware, 1982:: NAACP organized boycott of white merchants

to achieve desegregation; Ct said no actionable damagesc. FTC v. Indiana Federation of Dentists, 1986: Ct upheld a cease and desist order

entered against group of dentists that refused to apply x-rays to insurance companies – no credible argument had been offered that the action had pro-competitive effects and quality of care arguments were unconvincing.

d. FTC v. Superior Ct Trial Lawyers: lawyers thought that the amount of money they were being reimbursed for was too little, and to get more money, they decided to strike. Lawyers got the increased pay, and the FTC brought suit. Sup Ct said this is a per se violation of the antitrust laws. Unlike in NAACP, there was no economic purpose.

Horizontal Market Division

L. Jay Palmer v. BRG of Georgia, Inc, 1990 (BarBri case)a. HBJ sold bar review courses; BRG was a local bar review company. HBJ comes to the

area and the prices fall; come up with a plan for BRG to use HBJ material and pay certain percentage.

b. Supreme Court says that this is an agreement to raise price and this is per se illegal, relying on Topco even after Bork over-ruled it in Rothery.

M. Forest City v. Polk Brothers, 1985, 7th Cir. a. Two businesses agree to share a building and enter into a restrictive covenant where

they agree not to sell competing products. Forest City had other stores and found appliances were profitable and wanted to sell them, but in order to do so have to set covenant aside. If this was the per se period, would clearly be a market division and illegal.

Easterbrook (for the court)b. Thinks Addyston Pipe is what governs.c. Distinguishes between naked restraint and ancillary can use quick look to see if

ancillary (traditionally used quick look to see if per se applied). Ancillary restrains promote competitive activity and the agreement is not the critical issue – more concerned about whether it’s a productive agreement. To do this, concede that there is a restraint, but examine it ex ante. If there was no agreement, then they never would have gone into business b/c worried about free-riding. Creation of this shopping center was pro-competitive; better off having real competitors than potential ones.

d. Clean hands defense: the covenant was already broken; and the idea that a party to an illegal contract has unclean hands and can’t get the court to help them get out of the deal they made. Don’t like this defense in antitrust – if the contract is in restraint of trade, don’t want to enforce it.

Dealing with Dealers

N. Monsanto Co v. Spray-Rite Service Corp, 1984 – a. vertical price fixing, § 1 - raised issue of requisite standard of proofb. Monsanto manufactures chemical products, including herbicides. Set up distributors

for one year terms, and chose distributors based on certain criteria (i.e. whether the

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distributor’s primary activity was soliciting sales to retail dealers; (2) whether the distributor employed trained salesmen capable of educating its customers on the technical aspects of the herbicide, and (3) whether the distributor could be expected to fully exploit the market in its geographical area of primary responsibility). B/c the herbicide was a technical product, to be a Monsanto distributor, had to be capable of providing a certain level of service. Spray-Rite was a distributor, and was selling Monsanto herbicide at a discounted price. Monsanto declines to renew Spray-Rites distributorship; Spray Rite claims that this is a cover for what is really an effort by Monsanto to set the resale price.

c. Court sees this as a case that merged Dr. Miles & Parke Davis type cases with Sylvania and Schwinn type cases.

d. Court distinguishes between price and non-price restraints and concerted and individual action.

e. Court says that the test needs to be whether the evidence excludes the possibly that this was independent action, and the burden is on P to show that this wasn’t just accidental – there has to be something more to show that there is an actual conspiracy. Here the court found there was sufficient evidence for the jury to reasonably conclude that Monsanto and some its distributors were parties to an agreement or conspiracy to maintain resale prices and terminate price cutters. After Spray Rites termination, Monsanto went around to distributors and said look what happened to Spray Rite – you don’t want to be like that.

f. Remember that single firm action is ok – it is a problem when there is an agreement among many.

Concerted IndividualPrice [minimum] Per Se illegal Ok under ColgateNon-Price Rule of reason under GTE Ok – Colgate

** [minimum] is from State Oil Company v. Khan – Monsanto both min and max prices are covered.

O. Business Electronics v. Sharp Electronics, 1988a. BE was at one point the exclusive retailer for Sharp. Sharp later appoints Hartwell as a

second retailer. Sharp published a list of suggested minimum retail prices, but its writer dealership agreements with BE and Hartwell did not obligate either to observe them. Hartwell later tells share that it would terminate its dealership unless Sharp ended its relationship with BE b/c BE often charged low prices, and Sharp does terminate. Issue becomes whether this is a price decision or not, and whether it is unilateral or not.

Scalia (for the court)b. agrees that there can be a per se rule against price fixing, but should apply the rule of

reason unless there is overwhelming reason to use per se. Termination of a single price cutter without any proof of a bigger agenda does not reduce output and reduce price – it is just the termination of a dealer. Doesn’t concede that this is a price restraint – says instead that this is a non-price restraint and really only exclusive territory – same as GTE and should use rule of reason. If it would qualify as an appropriate vertical allocation under RR, then the fact that you got there by terminating a second firm of cutting price is irrelevant. Vertical restraint NOT illegal per se unless it includes some agreement on price or price levels.

Stevens and White (dissent)c. thinks this was a horizontal price restraint – doesn’t become a vertical territorial

allocation just b/c you are now in the modern period and cutting out a dealer b/c he

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charges low prices is not a nonprice restraint. No significant showing of what positive interbrand effects there are here.

d. Note case : Atlantic Richfield v. USA Petroleum: USA Petroleum was a customer of ARCO that sold its gas at discount prices; ARCO imposed cap on dealers’ prices, which were still below cost, but USAP said the effect of the plan was to reduce its profit margin and damage its ability to remain in the market. Supreme Court threw the case out for lack of injury. USAP was not the appropriate P b/c it hadn’t been subject to antitrust injury- their injury was a result of competition. Court is using a lack of injury analysis.

P. State Oil Co v. Khan, 1997a. Over-rules Albrecht. Khan owned a service station that purchase oil from State – State

sold with a suggested retail price, and there was some leeway on the price that could be charged depending on profit margin, but if sold above a certain price had to give some to state. Khan claims that State engaged in price fixing in violation of § 1. Khan ultimately goes bankrupt – claimed that if he was able to, could have charged more for premium gas and avoided bankruptcy and said he was personally damaged by not being able to sell at the prices he wanted to.

b. Under Albrecht, the rationale is that maximum prices are really money, and Khan would have a logical problem with his argument and not have had antitrust injury.

c. Court: no one to get around Albrecht – simply have to over-rule it like Schwinn was over-ruled in Sylvania. Now it is only minimum concerted prices that are per se illegal. If it turns out that you are dealing with a situation where something that purports to be a max is really a min, then prove it in RR case.

Pulling the § 1 Cases Together

Q. 3 Efforts to Reconcile the “Modern” Cases a. Commissioner Calvani (in Massachusetts Board of Registration in Optometry)

i. Poses three questions:1. whether the restraint is inherently suspect; that is, it is likely to restrict

competition and decrease output? If it is not inherently suspect, use rule of reason.

2. If inherently suspect, ask if there is an efficiency justification for the practice (i.e. it makes a market; improves operation of a market). But he doesn’t limit it – if it is pro-efficiency it is sufficient for him (i.e. BMI). This is a much broader analysis. Not pro-efficiency, condemn restriction.

3. If the efficiency justification is plausible, last see if the justification is valid.

b. Judge Easterbrook i. Proposes filter system – want to care about economic reality w/o losing the

clarity and efficiency of the per se periodii. First: P should have to provide a logical demonstration that D has market

power; otherwise anticompetitive effect won’t succeed. If no market power, get rid of the case.

iii. Second: P should have to show that the D has an incentive to behave in an anticompetitive way and that the antitrust sanctions are necessary to correct the D’s incentives. This eliminates cases alleging conduct that would be unprofitable to the alleged offender.

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iv. Third: Court should then determine whether firms in the industry use different methods of production and distribution; if so, competition between those methods should protect consumers.

v. Fourth: Court should look to see if there is evidence output really was reduced by challenged practice.

vi. Fifth: look at identity of P, b/c if a business rival brings suit, it is often safe to infer that the arrangement is beneficial to consumers.

c. Joel Klein i. “enforcement oriented analysis” and 3 stepsii. First: is the agreement the type of restraint that is currently recognized by the

court as being a per se violation (i.e. an unadorned agreement to fix prices, curtail output, or divide markets)

iii. Next: if there is a horizontal agreement that is not per se illegal, inquire whether there is a pro-competitive justification for the agreement (burden on defending party to answer this).

iv. If there are significant pro-competitive benefits to the agreement, seek to determine whether its likely anticompetitive effects outweigh the procompetitive benefits.

R. California Dental Ass’n v. FTC, 1999a. CDA had issued a code that a dentist may advertise, but they can’t be false or

misleading and may not fail to contribute to the esteem of the public for dentists. FTC found these rules per se illegal b/c dentists were unable to advertise that something was painless or offer across the board discounts and not justified as professional ethics regulation.

b. Ct of Appeals: used quick rule of reason analysis as in NCAA. Private restriction on info offered is a limitation on competition and ought to be seen as per se illegal or just as illegal as any other restriction on something consumers would want. Even under RR, still no way to justify this.

Souter (for the court)c. can only apply a quick look if an observer with a rudimentary knowledge of economics

can tell that it has anticompetitive effects. Professional advertising is related to something that the consumer doesn’t understand and is likely to be misled. Even if the restriction relates to discount, might not be anticompetitive. FTC didn’t present enough evidence of anticompetitive effects – didn’t even reach the stage where CDA would have to show pro-competitive justifications.

d. Point of this case is that there is no rule of reason, no quick look, no per se rule – whatever is needed is needed.

i. Problem is that you don’t know what is needed until its too late – all cases have to be given full blown analysis or else the Sup Ct might say it needed more.

e. When case is sent back to Ct of Appeals, the Ct of App says that you don’t get two bites at the apple and can’t try to prove know what you thought was self evident before.

Breyer (concur/dissent)f. 4 questions to ask (Morgan sees this as good guidance for what Ct will do in future

cases)i. What is the specific restraint at issue?ii. What are its likely anticompetitive effectsiii. Are there offsetting procompetitive justifications?iv. Do the parties have sufficient market power to make a difference?

g. This approach combines Easterbrook’s market power concern with the Calvani approach. Here there was substantial advertising to show that the DCA had prohibited

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this advertising w/o regard to whether it was true, and it was restriction of information that consumers would find useful. Evidence about whether people needed this information goes to pro-competitive effects, and the problem of the inadequate record is that of the Ds, and FTC shouldn’t bear the consequence of that. Also sufficient market power – CDA had 75%-90% of the market and its hard to enter.

S. In the Matter of Polygram Holding, 2003, FTC Opiniona. 3 Tenors made T1, T2, and decide to make T3. Polygram and Warner each owned

rights of one, and decided to work together on 3rd. Formed joint venture to produce T3 and had a moratorium agreement that they wont advertise or sell the first two at discounted prices.

b. FTC strikes this down.i. First, see if market power to see if it can hurt consumers.ii. Next, look at anticompetitive effects.iii. If anticompetitive effects, D has burden to show “facially plausible case” and

that justification has to be legally cognizable (increased efficiency, procompetitive.

iv. P then gets to go again and make more detailed proof, and then P can go back and give more detail.

c. Here agreement not to discount is what Sup Ct said is per se illegal and facially anticompetitive b/c this is a cd, not something like professional advertising. Pro-competitive justification that earlier recordings would be free-riding is silly.

The Continuing Concern about Exclusionary Conduct

Monopolization

T. Aspen Skiing Co v. Aspen Highlands, 1985a. Originally three independent companies running 3 mountains; offered a 6 day ticket

that could be used at any of the three. SkiCo buys two of the mountains, and the interchangeable ticket continues. In 1967, SkiCo opens a third and much larger mountain that is set apart from the other two. They did a 4 mountain ticket based on usage, but the new mountain was farther away and had less people, so less revenues. SkiCo tries to cap the amount that Highlands could get and then starts to advertise for only their mountains, making it seem like Highlands didn’t exist. Highlands tries to offer a bunch of things but SkiCo rejects them all, and Highlands is hurt. SkiCo defends by saying no duty to cooperate with its competitors. Also argued that Highlands wasn’t offering same quality and didn’t want to be associated with them.

i. If they all did cooperate, it is arguably a conspiracy and price fixing. Could try to argue that like BMI it is a new product, but these facts too place before BMI.

b. Case tried on § 2 theory. Dist Ct found (and Sup Ct adopted):i. Need to show that D willfully acquired and maintained monopoly power by

anticompetitive or exclusive means or for anticompetitive or exclusionary purposes. Not enough to show someone has substantial market share – to determine if there was willful use of monopoly power, jury has to distinguish monopolies gotten as a result of superior business or just luck from anticompetitive conduct.

ii. No duty to cooperate under § 2; refusal to cooperate may be justified if there is a legit business purpose.

iii. Jury found that the product market is downhill skiing at destination ski resorts. Court defines geographic market as skiing in the entire country. Idea here is

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that Aspen is a submarket b/c when deciding where to go skiing, think more about the area and less about the particular mountain.

c. Ct of Appeals:i. Uses essential facilities doctrine and said it is necessary to have access to

multi-mountain ticket to survive in Aspen market.d. Sup Ct

i. This case is not about a general duty to cooperate with rivals; cases like BMI are exceptions. There may be circumstances where a unilateral decision not to cooperate violates § 2, but generally that is a § 1 issue.

ii. Since people liked the 4 mountain ticket and it was a successful way of doing business, failure to offer it can’t be justified as a better way of marketing Aspen or w/in Aspen. If you move from a successful business model to one that consumers like less and hurts your competitors, it is predatory conduct.

iii. Evidence supports inference that Ski Co was not motivated by efficiency concerns and it was willing to sacrifice short run benefits and consumer goodwill in exchange for a perceived long-run impact on its smaller rival (i.e. predatory conduct).

U. Verizon v. Trinko, 2004a. Verizon had monopoly power over the local phone lines prior to the 1996 act; after the

act, there was at least potential for competition. P was an ATT customer and unhappy with his service. Under the Act, Verizon had to share its facilities with ATT and would fix any problems with the system. Allegation here was Verizon was fixing its own customers problems first.

b. 3 of the dissenting justices thought that there was no standing.Scalia (for the Court)c. First issue is whether the act was intended to be immune to the antitrust law – court

said no, there was a savings clause that explicitly prevented that. d. Issue was if a regulatory statute requires you to do something and requires it b/c the

system is designed to stimulate competition, should you be able to say that a violation of the regulatory req’t is also a violation of the antitrust law?

i. Argument that it should: Standard Oil was all about the potentiality of competition – the monopolist can’t sustain higher prices b/c of the possibility of new entrants, and any action to prevent that from happening would violate § 2. This conduct looks like it fits w/in § 2 b/c it is a willful maintenance of a monopoly power by something that favors its own customers.

e. This argument failed – the statute specifically said it wasn’t designed to take antitrust remedies off the table. The fact that antitrust laws aren’t precluded doesn’t mean that there is a violation of them. If Verizon wasn’t a regulated firm, there would be no duty to cooperate like in Aspen, which the Court found to be an unusual case on the outer boundaries. No duty of an existing firm to cooperate with a firm that wants to enter the market.

f. Court rejects the essential facilities doctrine – it is relatively undefined and they aren’t going to apply it here.

g. Tends to show a violation of a regulation isn’t in and of itself enough to show antitrust injury/purpose/effect

h. Morgan isn’t so sure about this case case shows alleged anticompetitive actions not enough

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Predatory Conduct

V. Matsushita Electric Industrial Co v. Zenith Radio Corpa. Ds were 21 Japanese companies that were producers of tvs and tv parts; allegation

that they were charging predatory prices to drive Ps out of the market. Generally, they were charging artificially high prices in Japan, and had large manufacturing plants and couldn’t sell all the tvs they made in Japan, so sold them in US. Argument also that Japanese Ministry of Trade went along with this; Ds used this to say that they were compelled by a sovereign and anything that happened was a result of Japanese regulation (Sup Ct doesn’t touch this issue). Ds say also that charging high prices in Japan doesn’t violate US antitrust laws, and Ps argument doesn’t make any coherent/economic sense.

Powell (for the Court)b. To survive motion for SJ:

i. Is there an antitrust injury? 1. As to the issue that the Japanese industry of trade mandated minimum

prices: this is good for competitors b/c can undercut them. Not a basis for antitrust claim.

2. With private antitrust claims, first need to see whether the P has asserted something that can be antitrust injury – here that didn’t happen.

ii. Genuine issue of fact?1. If the argument doesn’t make economic sense, no genuine issue of

material fact, and SJ appropriate. 2. Here there is no issue of material fact – the predatory pricing scheme

made no sense. c. Argument that cutting it off before it goes to the jury is good for the D – for P in an

antitrust case, there will be high expense and Ps wont bring a case if they don’t think they will be able to recover b/c D will drag out discovery.

d. Predatory pricing is rare: the premise is that you need to undercut long enough and incur real costs – selling below the MC, and need to have the prospect of recouping the money in the future by getting monopoly profit and hope that no one enters the market. Here the Ds had been “doing” this for 20 years and Ps still had the majority of the market share.

e. Is this case correct? i. Puts more pressure on P to show conspiracy, which is consistent with

Monsanto. ii. This was a bad case to begin with, and this cuts down on the number of bad P

cases, which is good b/c § 2 cases are expensive to try and defend

f. Note case: A.A. Poultry Farms v. Rose Acre Farms, 7th Cir, 1989i. Raised the issue of what it means to apply the initial screening to § 2 predatory

pricing casesii. Rose Acre is a vertically integrated egg producer and processor. Problem in

that hens don’t lay eggs in the proportion of large/small of the eggs ordered, and issue of what to do with the extra eggs.

iii. One option is to sell the eggs to breakers, who use them in cake mix and similar products. But Rose Acre sold the surplus at a discount to its regular customers. Competitors claimed predatory pricing b/c they were selling at less than total average cost.

Judge Easterbrook (for the Ct)

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iv. Is this a cause of action? How to determine:1. does price exceed cost?

a. This is a complicated and speculative way of going about it2. intent?

a. Again, not a good measure – can always find a vigorous competitor and this is unreliable

3. Can losses be recouped as part of the high price later of the predatory sequence?

a. This is the approach he favors. Here he finds it was no possibility for monopoly prices later; prices were falling, constant entry into market, no barriers to entry. Also, industry was very diffuse; Rose Acre had 1%

b. Sup Ct uses this test in a later case

W. Le Pages v. 3M, 3rd Cir, 2003a. LePages was selling cheaper than 3M – it was competing on a price basis. 3M tells

retailers that if it bought all 6 products it offered, would get high rebates, and less rebates if you didn’t buy all the products. LePages asserted this was monopolization and violation of § 2. Also claim of exclusive dealing. 3M says that it can’t be illegal to lower the prices as long as its not below cost.

b. Court relies on Alcoa, which had previously been a dormant cases. Alcoa had used its size for abuse and didn’t get smaller when it had a chance. 3M also had to figure out this marking technique b/c it was trying to keep market share. Ct also cites to Aspen Skiing – can’t elect a way of dealing that has the obvious effect of hurting a smaller rival.

c. Also finds that this is exclusive dealing – while 3M doesn’t require exclusive dealing, it creates a huge incentive to do so. Excluding all competitors is a violation of § 2, and a jury could reasonably found that 3M did so.

d. Can try to make the argument that this increases competition by keeping price low. e. Quantity purchasing incentive could be a violation of § 2. f. This, along with Microsoft, show that exclusive dealing arrangements and the effort to

get someone to buy only your product can be sufficiently anticompetitive to raise need for showing of pro-competitive.

Tying and Exclusive Dealing in the Current Period

X. Jefferson Parish Hospital Dist. No 2 v. Hyde, 1984a. Hospital made contract with group of doctors (Roux) that they would provide

anesthesia services needed by any patients and were the only doctors given authority to provide these services. P was a doctor who was denied the ability to provide anesthesiology services to the hospital – not contested that he would have been fully competent doctor.

i. This transaction might have been characterized as exclusive dealing – when you need an anesthesiologist, there will be one. Reason that it wasn’t filed as when b/c it would be rule of reason and assessment of commerce effected would be assessed in terms of % of market effected, rather than value of services as in tying.

b. P wants this to be tying arrangement and subject to per se treatment – anyone who wanted operating room services was compelled to buy the services of the Roux anesthesia group and the fact that people still got surgery shoes market power.

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Stevens (for the Court)c. Two part test:

i. Is this two separate products? ii. Used market power to force customers to accept tied product?

d. If selling only a single product, fact that there are two parts to it doesn’t make it a tying arrangement (i.e. a car with doors is one product). Hospital is trying to argue that no one has surgery w/o anesthesia. Court finds that there are two products – demand for anesthesia is viewed by some patients as a separate demand (probably someone who is having an elective surgery or a woman who is going to give birth). Look to determine whether there is a different level of demand and whether people would want to make a choice.

e. Isn’t only the fact that two products are packaged together; need to have market power to say there is an illegal tie (this has always been part of the rule, but in the 3rd period this wasn’t hard to show). When look at the people who live in the area of the hospital, find that 70% of the people don’t use this hospital – so no market power. When only have 30%, not enough to be said to be market power for purposes of per se analysis (though 30% might be market power in other situations)

f. Tying remains subject to a per se rule. O’Connor (concurring)g. Wants to get rid of per se rule for tying – creates all the costs of rule of reason b/c you

have to find certain criteria – and by the time you go through the proof of all those elements, might as well go through RR analysis. Fruitless to hang onto form of per se rule when you have established a rule with all the issues of a RR w/o any of the benefits of being able to show the context and benefits. Willing to look at benefits of selling as a package (i.e. group available; ensure good doctors).

h. To see if illegal tie present:i. Seller must have market power in tying-product marketii. Substantial threat that the tying seller will acquire market power in tied-product

market. 1. used to only look at dollar value

iii. must be coherent economic basis for treating the tying and tied products as distinct

1. customers would want to have one w/o the other2. here, won’t want surgery w/o anesthesia, or anesthesia w/o surgery.

Therefore meaningless to talk about independent demand for two items. Hospital also can’t get more money by selling the two together – can get monopoly profit by raising price of operating room

i. Tie-in should be condemned only when its anticompetitive impact outweighs its contribution to efficiency.

j. Exclusive dealing: is provider being foreclosed from practicing/selling their product? Based on providers alternatives – only 30% patients excluded and no substantial effect on commerce.

Y. Eastman Kodak v. Technical Services, 1992a. Seen as potentially changing direction of antitrust law – seen as radical. But later cases

really show this is stand alone. b. Alleged violation of § 1 and § 2. Kodak made relatively unusual products and had to

be serviced to precise tolerances. Ps were independent service organizations that would service Kodak machines – Kodak then adopted policies to limit availability of parts to these service providers. If you were a customer and wanted to get Kodak

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parts, go to Kodak for service or have your own employees do service (but no 3rd parties).

c. Dist Ct: P is really saying when you buy Kodak machine, also are required to buy Kodak service (equipment and service tied)– not parts and services like P claimed. Kodak has no market power over the equipment.

Blackmun (for the court)d. Kodak had market power over their own parts – some made by Kodak, some by other

manufacturers. But that was the only thing Kodak had power over. In order to get parts you want, have to buy service.

e. Kodak tries to say not separate products:i. One integrated product –don’t want a part w/o service – the part is integrally

part of the service being done. Can sometimes do service w/o parts (i.e. tune up) and sometimes would want part w/o service.

ii. Court finds that it really two products: some customers want to purchase service and parts separately.

f. Kodak tries to say no market power over its parts:i. No market power over equipment so can’t have market power over the parts for

the equipment, b/c the people who buy the equipment in the first place will assess part availability issue when deciding what machine to buy. If seeking monopoly prices over price, will drive away people from buying the machine. Court says not an on/off switch where some have market power – have to let P try to demonstrate that there is sufficient market power and can charge higher prices b/c of degree of power they do have. Also, would make it cheap to repair machine but charge a lot for parts.

ii. Life cycle valuation is too difficult. g. People who already had a Kodak machine were the ones really in trouble – Kodak

hadn’t adopted this policy until people already bought the machines. h. Has had a lasting impact on the change of the standard for SJ – apparent bias in favor

of D seems to have been abandoned by the CtScalia (dissenting)i. Takes objection to the fact that the majority is tying parts to service as opposed to

equipment to service will always find monopoly power w/your own parts. j. Can’t be per se illegal if you don’t have power over the product which you are giving a

warranty for – if you could have sold products with warranty, this should be the same thing.

k. People who are buying these machines are smart and will figure out life cycle cost – enough people will do this so that Kodak has to price competitively.

Titanic Struggle over Alleged Exclusionary Behavior - the Microsoft Cases

Z. US v. Microsoft, DC Ct of Appeals, 1998 a. IBM gave Microsoft the opportunity to be the OS on its computers, which is how

Microsoft got its start. Once Microsoft had its product, very low MC to distribute it. Simple characteristic of being the firm that got to the top by good luck in other than an Alcoa type world means we don’t want to make it illegal.

b. DOJ was worried that Microsoft would use monopoly position in OS market to require people to buy things that could have been sold competitively but would become part of Microsoft monopoly.

c. Consent decree:i. Allowed Microsoft to develop “integrated products”

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ii. NOT allow Microsoft to enter into license agreements where terms of agreement conditioned on licensing of any other covered product, OS, software

d. In this case, Microsoft included IE as part of Windows (previously was an add-on); argument that this violated consent decree. Microsoft said its an improvement of the machine itself to move from word processing to the internet.

e. Court said this was NOT tying case, but just about trying to enforce the consent decree. Gov’t argues that the OS for a personal computer is what turns it on; the browser is what allows you to play on the internet. Just as games can be sold competitively, so to is access to the internet.

f. Court finds that this is an integrated product – i. a monopolist could not increase its profit for windows by integrating these

products (not what you’d expect a firm engaging in exploitation to do). ii. Integration consists of taking two products and making better product than if the

two were put together by individualsiii. Just need to show that improvement in products are actually improvements,

and if that is so then Court will allow itg. Wald (concurring/dissenting): concerned too deferential approach and ought to be

substantial requirement of Microsoft showing real synergies showing that this benefits consumer

i. 2 factors to balance:1. evidence of synergies – real benefits to customers w/integration2. independent evidence that a genuine market exists for the 2 products

provided separately ii. balancing test: the greater the evidence of distinct markets, the more of a

showing of synergy Microsoft must make in order to justify incorporating what would otherwise be an “other” product into an “integrated” whole. If evidence is weak, Microsoft has to show less.

iii. While this test hasn’t been widely adopted, can suggest it on exam

AA. U.S. v. Microsoft, DC Cir Ct of Appeals, 2001a. Gov’t filed this case with charge of monopolization and maintenance of monopoly

power in OS market, attempt to monopolize browser market, exclusive dealing, and tying.

b. Monopolization claim :i. Market definition: intel-compatible PC operating systems worldwide (Court

excludes Macs – even if PCs went up in price, most people wouldn’t switch- they are used to using PCs and have all the applications).

1. Microsoft tried to include non-Intel compatible OS’s (like Apples/Macs) – Ct of Appeals said Microsoft users are locked into Microsoft; high switching costs

2. Also tries to argue palm pilots and the like should be included – Ct of appeals rejects this.

3. Microsoft tries to include middleware – Ct of App said Middleware said that it is not the same now as an OS>

ii. Proof of monopolization in violation of § 2: Microsoft was trying to stamp out middleware – it would provide a platform for the operation of software using other operating systems. Middleware would create a basis for application programs to run on something other than Windows.

iii. Dist Ct said that Microsoft integrated IE, and that can only be said as a way to kill development of Netscape.

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iv. Ct of Appeals said for § 2 violation:1. to be condemned as exclusionary, a monopolists act must have an

anticompetitive effect2. P must demonstrate that the monopolist’s conduct indeed has the

requisite anticompetitive effecta. i.e. antitrust injury

3. If P successfully established prima facie case under § 3 by demonstrating anticompetitive effect, then monopolist can proffer a pro-competitive justification for its conduct

4. if monopolists pro-competitive justification stands unrebutted, then the P must demonstrate that the anticompetitive harm of the conduct outweighs the pro-competitive benefit

5. Last, look at EFFECT of conduct, NOT INTENTv. Ct of Appeals said no problem in giving away IE for free even though Dist Ct

said it was predatory pricing. Unless you can show a cost to Microsoft, not predatory.

vi. Problem is by the licensing agreement with the OEMS – exclusive dealing if what you are doing makes it difficult for people to take away your monopoly

vii. Ct of Appeals finds § 2 violation a number of the charges were of anticompetitive effects (i.e. agreements with OEMs and ISPs)

c. Attempt to monopolize browser market i. Gov’t lost on this issue – never put on issue of what the browser market is (i.e.

size). Need theory on what the market is, and what the market share is. No theory, no case.

d. Exclusive dealing issue: i. Dist Ct found no exclusive dealing

e. Tying: i. Dist Ct said two products, not one. Cited Kodak and Jefferson Parish. Willing to

find per se tyingii. Ct of Appeals:

1. accepted Dist Ct findings that there were two products; internet access is different product from OS system.

2. some industries in which it is inappropriate to apply per se illegality to the bundling of what are concededly two products times when it is dishonorable to consumers and inappropriate to do so (i.e. spell check with a word processing program).

3. Need to apply rule of reason in software industry. a. Did what O’Conner called for in Jefferson Parish. b. Ask the question: would a firm w/o market power bundle in this

market? Does it bring something to consumers? Remand this for the Dist Ct to deal with.

4. 4 elements to per se tying violation: a. tying and tied goods are two separate productsb. D has market power in tying product marketc. D affords consumers no choice but to purchase the tied product

from itd. Tying arrangement forecloses a substantial volume of

commerce.f. Would breaking up Microsoft be a United Shoe Machine? Would it destroy the

company? DOJ doesn’t break it up – sets up requirements of what they cant do. g. Under this case, the proof takes the form that:

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i. P’s conduct had anticompetitive purpose/effectii. D can then show effects were pro-competitive and sufficient to over-come

anticompetitive affect showniii. P can than rebut

h. Under this case then, Aspen would be that there was no pro-competitive effect.

** make sure to weigh and analyze the facts for each case** define market, market power, willful maintenance, any defense for conduct?

BB. Clayton §7—The Hart-Scott-Rodino Acta. if the size thresholds are met ($200 million assets with other firms assets of $50 million

alone), then pre-merger notice has to be filed 30 days prior to the merger being closed b. merger may be put on hold, but the merger may die during the time It is on hold. c. Incentive for parties to get agencies happy as soon as possible agencies end up

identifying certain product or geographic markets where there is a particular problem, and the parties work on eliminating that part of the merger.

Merger Review

CC. Merger Guidelines (p. 884) a. Define a fundamental evil for when merger created antitrust risk market power

i. Market power: Whether or not you can maintain prices above competitive level for a significant period of time

ii. Premise of this definition is that if you have a firm that you show is consistently able to sell product even though its prices are above a competitive level, can say that the firm is not subject to the usual constraints of competition and has market power – but that doesn’t mean it’s a monopolist – but it could be capable of using the power to engage in tying.

b. 5 issues in the analysis of a mergeri. does the market get significantly more concentrated?

1. if no significant increase in concentration, ordinarily no further analysis2. market definition:

a. could this person raise prices and maintain it for a year? Theory is that if you imagine that there is a single firm selling this product, will purchasers be able to shift to substitute? If yes, have to include those substitutes in the market. Want smallest product/geographic definition

3. market share: if there are people capable of recycling formally used product and bringing it back for sale, then it should be considered part of the market (as in ALCOA)

4. HHI index : sum the squares of the individual market shares of all participants

a. Post-merger HHI Below 1000: unconcentratedb. Post-merger HHI between 1000-1800: moderately concentratedc. Post-merger HHI above 1800: highly concentrated

ii. Whether the merger in light of market concentration and other factors that characterize the market raises concern about potential adverse competitive effects

1. talk about ability of firms to engage in collusive pricing a. easy to collude? b. Easy to detect cheating?

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2. Look at Posner analysis after American Columniii. Ease of entry

1. 3 step analysisa. can entry achieve significant market impact w/in a timely periodb. entry would be profitablec. timely and likely entry would be sufficient to return market prices

to pre-merger leveliv. Assessment of any efficiency gains that reasonably can’t be achieved by the

parties through other means (are there merger-specific efficiencies). v. Failing firm? If the merger didn’t go through, would one party exit the market?

DD. FTC v. Staples and Office Depot, Dist Ct for Dist of Columbia, 1997a. Staples and Office Depot wanted to merge (#1 & #2 office superstores) tried a

number of things, and FTC seeks prelim injunction, and when they got in the parties ended up walking

b. Geographic market: metropolitan areas – i. Court was worried about small businesses ii. Why weren’t internet sales included into geographic market? If gov’t were going

to include it, it would include a much bigger market with Staples and OD having a very small share.

c. Product market:i. Defendants: sale of office products in north America (only 5% of this market)ii. Gov’t: sale of office products through office superstoresiii. Court says look functional interchangeability – concludes that legal pad is the

same as you get anywhere.iv. Then goes to cross-elasticity of demand – look at if this is submarket (is there

sufficient substitute so that they won’t accept an increase of 5% in price over a year) – here court says that this is its own market and people would continue coming even in price increase.

v. Court looks at data of the firms themselves to see who’s prices they had to keep track of to stay competitive – the office superstores looked to each other more than to Wal-mart or grocery stores. Also looked at who the customers were.

vi. Part of the problem is that these companies could charge the 5% increase b/c they are already selling for a lot less than non-office superstores – so increase in price won’t cause people to turn away.

d. Court talks about these firms raising prices above competitive levels if they merged, but that would still be less than what their competitors were selling for.

EE. FTC v. HJ Heinza. three major players in baby food market; Gerber (65%), Heinz (17%), Beech-Nut (15%)

– Heinz and Beech-Nut want to merge so that go from 3 firm to 2 firm market, but the merger would only give them half the market of what Gerber has. Heinz and Beech-nut each get half the stores – most stores only carry Gerber and one other.

b. Companies try to argue that the customers won’t see anything different than they do now. Gov’t says there won’t be entry to solve any problems that arise – and theory as to why the merger creates a problem is that there is currently competition to be the second company on the shelf.

c. Court says the competition to be the second person on the shelf will benefit the consumers.

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d. Is there problem for collusion? i. Prices readily available; products relatively homogenous ii. Cheating would be relatively difficult

e. Efficiencies argument:i. Firms said that Heinz could have produced Beech-nut products at its plant

would be able to better compete against Gerber b/c Heinz had best facility and Beech-nut had best recipes.

f. Court:i. Not deciding merits, but only if gov’t can try the case and grants prelim

injunction but at that point the merger fell through

Interplay between IP and Antitrust

FF. General Points from the Guidelinesa. for antitrust purposes, intellectual property is like any other property b. patents don’t carry a presumption of market powerc. licensing of IP can be a pro-competitive way to combine complimentary facets of

production. d. Two types of markets:

i. Technology marketsii. Research/innovation markets

GG. Intergraph v. Intel, Ct of Appeals, Fed Cir, 1999

a. Intel manufactures computer processors; Intergraph is an OEM. Intergraph had used “clipper” technique to make its own processors, but gave up and started using Intel’s. When Intergraph started buying Intel chips, Intel made it a partner and gave it proprietary information, and when Intel came out with a new chip, Intergraph could say they have it in their machines. Intergraph charges Intel with patent infringement of its clipper technology in making their own chips. As a result, Intel stopped providing special benefits, though they still provided the chips. Intergraph responds that Intel is a monopolist and violating § 2 by seeking to cut off Intergraph into not pursuing patent rights.

b. Intergraph’s theory as to why entitled to injunction granting it all it had before: if patent rights are to mean anything has to include ability to enforce these rights, and if big company can intimidate small one into not enforcing rights, will drive small companies out of business and misusing power.

c. Monopolization claim: i. Only relevant target of monopolization is competitor of monopolist, and here

they weren’t competitors (this is Intel’s argument). ii. Cites to Aspen Skiing – having dominant position doesn’t mean you are a

monopolist. iii. Possible argument is that Intergraph could become a competitor later on – idea

that you will let monopolist create hurdles for potential competitors is as much an interference with potentiality of competition as anything else.

iv. Tempting here to say that Intergraph brought this problem on itself – the Court here has asserted as a matter of antitrust law that § 2 doesn’t apply to those who are not competitors of the monopolists

1. Morgan says that this proposition is not inevitable. d. Essential facilities argument rejected

i. Idea that to produce in this market, these types of chips are essential and need enough advance info so your ready when the product comes out.

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ii. Argument that in the patent field is that anyone who has a valuable patent would be forced to license it. Argument in response is that you will get the profit for licensing it

iii. Ongoing issue between desire to retain IP as property or opposed to a collection of contract rights.

e. Leveraging Argument rejected i. Intergraph argued that Intel’s refusal to deal would create competitive

advantage in 2nd market (graphics) saying Intel was trying to get into Intergraph’s market and had bought a competitor of Intergraph’s

ii. Court responds that there was no proof – in attempt to monopolization cases, need to show that there is a “dangerous probability of success.” Intel so far from dangerous probability of success that there can be no attempt to monopolize

f. Coercive reciprocity argument rejectedi. Idea of argument is “I will buy something from you if you buy something from

me” – attempt to use your market power to get someone to patronize you. Intergraph said Intel refused to sell its technical data unless Intergraph would sell Intel patent rights

ii. Court rejects this: Intel is not trying to force Intergraph to buy anything. g. Use of IP to restrain trade:

i. Court said that patent holder can impose whatever requirements it wishes on the licensee of its IP

1. but this isn’t true – International Salt

HH. Andrex Pharmaceuticals v. Biovail Corp, Ct of Appeals, DC Circuit, 2001a. P was Bioval; both B and A had applied to make generic version of drug. Issue had to

do with complying with fairly complicated requirements designed to speed up the process of getting generic alternatives to the market. B wants to make one of these drugs; in its way is A. Requirements for generic drug (1) make application (2) certify no patent, expired, invalid, or wouldn’t be infringed on. HMRI had the original patent; A claims not infringing underlying patent. HMRI then has a certain amount of time to file suit against A; then 30 month period in which no one else can apply. A entered into deal with HMRI not to make generic drug and b/c they were not making it, the 30 month period would never begin and B would be prevented from making the drug.

b. Issue: was the deal between HMRI and A whereby A would not make the drug it was now licensed to make an antitrust violation or simply a patent deal?

c. Dist Court:i. B couldn’t show it would have entered the market at all b/c no approval for the

drug due to statutory procedure and no injury in factd. Ct. of Appeals

i. B was still potential competitor and had pled ready, willing, and able to enter the market

ii. Send it back for B to re-plead and show they are willing and able to enter market. If they do they, fact that they can’t get license is what they are complaining about.

iii. A claimed its conduct hadn’t caused B’s loss – said that the statute created B’s problem, not their conduct. A had never been required to bring product to market; only to file first. Court says one thing for A to decide alone not to go ahead; but completely different to conspire to agree with HMRI to preserve monopoly statute was designed to overcome.

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e. Remains a threat from the point of view of IP people that conduct that seems permissible to the participants may violate antitrust laws to the extent its not perceived as simply enforcing patent right but involves conspiracy not to allow competition to occur.

Interplay between Regulation and Antitrust Laws

II. Federal Regulation a. Verizon v. Trinko :

i. form of the federal regulation issueii. violation of a regulatory req’t, even one requiring competition, is not an antitrust

violation JJ. State Regulation

a. All from Parker v. Brown: i. antitrust laws were designed to deal with private actions by private firms, not

the actions of sovereign states. ii. CA raisin producers had gotten together and lobbied to limit the number of

raisins that could be sold in any given year. iii. Issue: did fed antitrust laws not reach the collective action

b. Noerr i. Effort to get such a law as in Parker or meeting together to discuss type of law

would like are NOT antitrust violations if bonafide effort to get regulatory reliefii. The “Noerr-Pennington Doctrine”iii. NOT conspiracy under antitrust act

c. Goldfarb i. Came up with minimum fee schedule; Court found this different b/c not required

by the Court – no compulsion ii. To be entitled to Parker-Brown protection, MUST be REQUIRED by state law to

do actd. Cantor

i. State regulation may not exempt action from the federal antitrust laws unless the anticompetitive conduct is necessary in order to make the regulatory act work

e. California Retain Liquor Dealers Assn v, Midcal Aluminum i. Mandatory retail pricing contradicted Dr. Miles, S.C. said even resale price

maintenance can be ordered by state IF:1. Clearly articulated and affirmatively expressed as state policy2. Actively supervised by state

KK.. Southern Motor Carriers Rate Conference v. US (1985)a. intrastate truck lines was regulated by state agency – standard way of doing

ratemaking is that company submits proposed rate and state agency approves or amends it. There was collective rate making authorized; submit a joint proposal and bureau decides whether to approve the rates.

b. This seems to be just like Trans-Missouri; defense was the same – the commission would have to determine rate.

c. Court and parties agreed Midcal was controlling. d. None of the state agencies said that it wouldn’t accept individual state proposals.

Justice Dept said no protection as under Midcal unless state has said that they want collective rate making. Court doesn’t agree with this argument – said this is a permissive state policy – state knows what was going on – doesn’t require it, but hasn’t prohibited it.

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e. Permissive became basis for clear articulation of state policyf. was there active supervision – Court concludes the state did conduct rate hearings and

require proof over reasonableness of the rates.g. Collective rate making activities, although not compelled by the States, are immune

from antitrust liability under Parker. Stevens and White (dissent)

h. make the point that this is a departure from the earlier cases that required compulsion. Compulsion demonstrates clearly articulated state policy.

i. Concern that people will begin to buy protection from federal antitrust laws by supporting certain politicians.

j. Parker was an unusual decision and at a time when there was a depression

Local Regulation

LL. City of Lafayette v. Louisiana Power & Light (note case)a. municipal electric co was alleged to have engaged in sham litigation against a private

utility and to have required purchasers of city water services to buy city power. City said it was not a person that could violate the Sherman Act. Court disagreed, and said that a city can be an antitrust plaintiff so it could be a defendant.

MM. Community Communications Co v. City of Boulder (note case)a. Not opening up cable to certain people as providers violated Sherman Act

NN. Fisher v. City of Berkeley (note case)a. Rent controlled ordinance enacted by ballot initiative. Court said this type of regulation

was unilaterally imposed by the city and not a conspiracy among the residents themselves, or the residences

OO. Columbia v. Omni Outdoor Advertising (1991)a. Case: COA had 95% of the market and was a local business; gave services to certain

politicians. Omni sued, said Columbia (the city) and COA violated §§1, 2 with anticomp billboard conspiracy b/w Omni and city officials when the city introduced an ordinance restricting size, location and spacing of billboards (basically prohibiting any new billboards). This favored COA, b/c COA already had most of the billboards. Said: This what Fisher meant when “product of local conspiracy” discussed as point where lose immunity from fed antitrust laws, and said city had NO author to regulate # billboards

b. Court (J. Scalia): i. Supreme Court is not fighting the point that a city is not a state – it is a creation

of the state. Unless the city can show that the state granted the city authority to engage in a regulation that would reduce competition, city’s regulation won’t be protected.

ii. City does not have the same power – need to show authorized by the state to do this.

iii. Court finds the delegating authority here. The city has authority to regulate billboards under S.Carolina state statutes, under the zoning power of the city and its ability to act for “general health and welfare” of its citizens. When city can engage in zoning, can withhold certain benefits, and this is a form of regulation by restricting where there will be billboards.

iv. NO conspiracy exception1. public officials often agree to do anticomp things

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2. all legislation to some degree = conspiracy, and you can’t ban it all! B/c all legislation is result of people wanting it, lobbying for it and conspiring to get it

3. **CAN prosecute bribery, etc. on own terms, but not under antitrust lawc. Dissent (Stevens, White, Marshall):

i. Let’s get back to 1st principles, the sovereign can’t create monopolies for their friends!! (see the Case of Monopolies!) so why let city of Columbia do it??

ii. Should be more worried about local regulations than federal b/c these not take greater/national good into consideration. Cheaper to buy a city council than the legislature!

d. Professional Real Estate Investors v. Columbia Pictures (note)i. Litigation is a sham when:

1. lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits

2. court should focus on whether the baseless lawsuit conceals an attempt to interfere directly with the business relationship of the competitors.

International Application of Antitrust Law

PP. Hartford Fire Insurance v. California (1993)a. suit brought by the Attorney Generals of a few states and alleging conspiracy in

insurance industry. Two independent groups: (1) ISO’s that provided language and terms for policies that companies could adopt or not adopt; and (2) reinsurance. 4 instances that are allegations of conspiracies: (1) claims made policy, not occurrence policy occurrence policy means that you are covered forever for anything that happened while you were insured. Claims made policy covers anything claimed during the time the policy existed. (2) retroactive date: had to be incident that occurred w/in a certain time (3) sudden and accidental eliminated (4) legal defense cost cap.

b. Most of the companies doing the reinsurance was in London (Lloyds) – US companies tried to get the ISO’s to change the policy forms and to make it work they had to persuade Lloyds to say they won’t reinsure unless the forms provide the new terms.

c. Was this the business of insurance and under McCarran-Ferguson act (has exception for boycott)? Don’t get into this here

d. The firms were saying that British regulation of insurance allowed what was done here and therefore should not violate US law.

i. Like in Matsushita v. Zenith, but the court didn’t address this issue here. ii. British method of regulating the insurance industry is that they can be trusted

and allow them to regulate themselves – i.e. Southern Motors (enough for state to say we know your doing it this way, and we trust you).

Souter (for the court)e. US antitrust laws were intended to reach foreign conduct with domestic effectsf. Is there a conflict between British and US law – he means whether you would have to

violate British law to comply with US law – not the case here. g. Permissive regulation in Great Britain not sufficient to immunize

Scalia (dissent)h. Assume that US law not intended to violate US law or to intrude on other counties

sovereignty i. Would enforcement interfere with the British way of doing things? Concludes that it

would – would be appropriate for the courts to exercise prescriptive comity not to apply US antitrust law abroad.

Who is right?

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j. Don’t want to assert our laws against companies who are complying with US lawk. Two problems:

i. Other countries asserting their laws against usii. Companies not wanting to do business here.

l. Morgan: giving less deference than we give to states

QQ. Empagran v. F. Hoffman-LaRoche, Ct. of Appeals, DC Circ, 2003a. Interprets FTAIA b. Ps are alleging that they are victims of conspiracy by foreign vitamin companies – no

question that the conduct violated US antitrust laws.c. Issue was given the fact that most Ps and Ds were foreign companies and involved

over-seas activities could this be litigated in US Court. All Ps, Ds, and conduct took place outside of US.

d. Argument for J/D was that the end result of the conspiracy had effects in the US. European law didn’t provide these people a remedy in their home countries.

e. Argument that they should be able to file: i. Violated the Sherman Act in the sense that there were some US effects that

had been redressed in previous action by Justice Dept. ii. Deterrence effect – realizes could make more money doing it than it would have

to pay in damages to US citizens and would do it argument is that in order to get damages significant enough to deter, need enough Ps that are able to file and make the damages large enough to deter.

f. Had to be a US effect – but if there was, everyone could bring suit g. Court holds where anticompetitive conduct has requisite harm on US commerce,

FTAIA permits suits by foreign plaintiffs who are injured SOLEY by that conducts effects on foreign commerce

h. Big focus of deterrence i. Also tackles issues of STANDING of foreign Ps

i. To meet constitutional requirements of standing under Clayton Act, antitrust P must establish “injury-in-fact” or threatened “inury in fact” caused by D’s alleged wrongdoing (Andrx)

1. The foreign purchasers here have Const. Standing, allege they suffered injury-in-fact when they paid inflated prices for vitamins directly to D’s, and this injury allegedly caused by D’s conspiracy to fix vitamin prices around the world

ii. Antitrust P must also establish “antitrust injury” = injury of type antitrust laws intended to prevent and flows from that which makes D’s acts unlawful (Pueblo Bowl-O-Mat)

1. Here: antitrust laws forbid price fixing that harms US commerce, includes fixing of prices in foreign markets where the conduct harms US commerce

2. foreign purchasers harmed by conduct that violated the Sherman Act, a global price-fixing conspiracy; paying inflated prices a loss of type violation of Sherman Act would be likely to cause

3. they have “antitrust injury”

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